The Other Shoe:More car owners behind on auto loans
DETROIT — Consumers straining to meet household expenses are taking
longer and longer to make their car payments, increasing the risk
they'll default on those loans and potentially making it harder and more
expensive for everyone else to get car loans.
Car loans that were 60 days past due — and likely to soon go into
default — were up 17% in the fourth quarter, says Experian Automotive
credit tracking. And the share of loans 60 days past due is expected to
be up 40% by December, compared with the share in December 2007,
TransUnion Credit says.
Even with the increases, 60-day delinquent loans remain only about 1% of
outstanding loans. But any rise is bad news for buyers, who've already
seen lenders tighten standards. They are less willing to lend to
subprime customers and asking for larger down payments even from
customers with solid credit histories. Lenders are also less willing to
issue loans that are for more than a car is worth — a practice that had
been common this decade as buyers traded cars on which they still owed
money and wrapped that amount into their new loan.
"A lot of lenders made changes in 2008 to their lending practices," says
Melinda Zabritski, director of automotive credit for Experian
Automotive. "I expect to see that holding steady for the rest of this year."
Experian says 60-day delinquencies are highest in Mississippi, the
District of Columbia, Alabama, Georgia and South Carolina. Delinquencies
are lowest in North Dakota, Arkansas, South Dakota, Montana and Wyoming.
Buyers in those areas tend to borrow less, says TransUnion, and are more
likely to make their payments because they rely more on their cars.
The average loan for a new vehicle was $24,444 in the fourth quarter,
down $338 from the first quarter of last year, Experian says.
Auto sales have taken a beating in recent months, down 39.4%
year-to-date. Rebates and incentives are up 7.1% through the end of
February, according to industry tracking firm Autodata, as the
automakers attempt to lure more buyers into showrooms.
But the cost of financing could soon start rising, says Pete Turek,
automotive vice president in TransUnion's financial services group.
Typically, lenders try to make up money they lose in delinquencies and
repossessions by raising other customers' costs.
Says Turek, "When there's higher losses in an industry, the lenders will
charge higher rates to account for those losses."