Back in March, as it became clearer and clearer that the economy was about to drive itself into a ditch, many people quite reasonably assumed that we would also begin to see a huge wave of auto loan defaults. But two months later, according to new data, that mostly hasn’t happened—yet.
That’s according to the credit reporting firm Transunion, which said Wednesday that the percentage of borrowers who were 60 days or more past due stayed relatively stable from March to April. That number was 1.33 percent in April, compared to 1.37 percent in March and 1.11 percent in April 2019.
From that data they reach a somewhat bizarre conclusion, summed up by Automotive News:
Serious delinquency rates for auto loans were within a normal range from March to April indicating federal aid, tax returns and lenders’ offerings of payment deferrals largely kept consumers above water — so far — during the COVID-19 crisis, credit bureau TransUnion said Wednesday.
I say bizarre because Transunion’s own report includes a different statistic that suggests things aren’t fine after all. That stat measures the percentage of borrowers who are “in hardship,” which Auto News defines as those whose payments have been deferred, accounts have been frozen, or have a “frozen past due payment in their account.” That percentage, for auto loans, was 3.54 percent in April, compared to 0.64 percent in March and 0.51 percent in April 2019.
By that measure, around five times the amount of people were hurting in April compared to March, which certainly is a bad harbinger going forward. And while Transunion says that borrowers in this category aren’t expected to eventually go delinquent, that seems like a much better indicator of where things stand.
The discrepancy can also probably be explained by the fact that 60 days from the last day in April was the beginning of March, before the pandemic had really taken hold in the States and the lockdowns and economic turmoil began. So what this long-term delinquency data really seems to be giving us a look at is the pre-pandemic auto loan picture more than anything.
Indeed, you would expect the long-term delinquency numbers to really start to pick up right around now, as we’re about two months out from when things started to get really serious and the lockdowns and layoffs began. Further out than now it could be even worse, as job losses continued to pile up and many likely couldn’t pay their auto loans. And while payment deferrals and federal aid have undoubtedly also helped, looking ahead, two big deadlines loom in July.
For example, a spike in delinquencies could occur in July for a variety of reasons, [Satyan Merchant, senior vice president and automotive business leader at TransUnion] said. Losing the federal unemployment benefit associated with COVID-19 relief, slated to end July 31, could put pressure on out-of-work consumers. The federal income tax filing deadline also was moved to July 15, another stress point for consumers who may owe the Internal Revenue Service.
According to Transunion, there were 83.3 million outstanding auto loans in the first three months of 2020, which is a good reminder that even a small percentage of that is still a huge number of borrowers.
This will all probably get worse before it gets better.