Auto Delinquencies Up but Threat Uncertain

Auto loan delinquencies are on the rise – explosively so, according to some sources – The Wall Street Journal reported today. But other sources indicate the increase is modest by historic standards.

The Journal reported that 4.5 percent of all auto loans made in 2006 to prime borrowers were delinquent in September, up more than 55 percent from the end of August, according to an analysis from Lehman Brothers. The rise was the largest monthly increase in eight years.

In addition, the American Bankers Association found that delinquencies on auto loans from third-party lenders through dealers came in at 2.77 percent in the second quarter, a rise of 1.5 percent from the first quarter of this year. Auto loans directly from dealer-manufacturers were delinquent to the tune of 1.69, up 0.6 percent. Both the Lehman Brothers and ABA numbers covered loans that were delinquent by 30 days.

However, numbers from Fitch Ratings were less eye-opening, as the analyst reviewed the the 60-day delinquency rate. For prime auto loans that had been bundled for trading, the delinquency rate was 0.65 percent in September, up 10 percent from August and up more than 18 percent from September 2006, according to Fitch. On the subprime side, 3.18 percent of the loans were 60 days or more delinquent, a 4.3 percent increase over August and the highest level since 2004. The report noted that these numbers are in-line with historical averages, and that the delinquency numbers were higher as recently as 2003.

Hylton Heard, a director in Fitch’s Auto ABS Group and co-author of the report “In The Auto ABS Driver’s Seat,” said that he doesn't see much improvement coming in 2008 due to weakness in the broader economy.