For U.S. automakers, 2010 may see an increase in sales but, according to credit reporting agency TransUnion, loan delinquency rates will likely increase as well.
In its annual auto loan forecast released on Wednesday, TransUnion projects that delinquencies in 2010 will increase by 7% over their current levels. If the projection proves accurate, it will mark the fifth consecutive year in which auto loan delinquency rates have either remained stable or worsened.
TransUnion’s automotive vice president of financial services group Peter Turek said, It’s a relatively mild increase but certainly a cautionary number for those expecting an abrupt turnaround.
The company predicts that the ratio of delinquencies of 60 days or more will increase to 0.92% by the end of 2010. The ratio is expected to be at about 0.86% at the end of this year.
TransUnion projects that the delinquency rate will actually fall slightly during the first half of next year resulting from an influx of borrowers created by the federal CARS incentive program and more stringent lending practices. During the second half of 2010, Turek expects delinquencies to rise as a number of factors, including holiday travel, back-to-school and vacation spending strains consumer’s budgets and the unemployment rate peaks.
One bright spot in the otherwise gloomy forecast can be found in TransUnion’s projection for California where the automotive loan delinquency rate is expected to drop by 3.55% to 1.35% by year’s end. At that rate, the state’s delinquency rate would still be higher than the national average.
California’s position as an economic bellwether, however, makes the projected improvement significant. Turek said, It’s a good sign to show that delinquency could start improving leaving 2010 and going into 2011.
The report also projects moderating delinquency rates in Nevada and Florida, which have been hard-hit during this year’s economic downturn.
The news is not as good for Georgia, Indiana, Kentucky and Michigan which are projected to see the most dramatic increases in delinquency rates year-to-year.
By year’s end, Georgia will rank with neighboring Southern states, Alabama and Mississippi as having the nation’s highest auto delinquency rates according to the report.