Trouble may be brewing in the key auto finance sector in the months ahead amid the economic fallout from the coronavirus, despite a drop in loan delinquency rates in the United States in the first quarter, a new report by credit agency Experian finds.
Both 30- and 60-day delinquencies on auto loans dropped in the first quarter, to 1.93 percent and .67 percent respectively, per Experian’s latest “State of the Automotive Finance Market Report.”
The numbers were buoyed by a fairly strong economy until the final two weeks of the first quarter in mid-March, when the coronavirus lockdown measures took hold across the United States, the report noted.
Also helping to keep the sector rolling have been billions in government assistance in the form of stimulus checks and other assistance programs, noted Melinda Zabritski, Experian’s senior director of automotive financial solutions, in a press release on the report.
The warning signs come as consumers during the first 10 weeks of the first quarter took on record levels of debt to pay for new and used cars.
The average monthly payment hit a record of $569 for new cars and $397 for used cars, on average total loan amounts of $33,739 and $20,723, respectively.
“Some consumers are likely leveraging financial resources and assistance programs, such as stimulus checks, to manage through financial hardship, so its true impact may not be evident until the months ahead,” Zabritski said.
Meanwhile, vehicle title changes, which provide an early read on sales activity, plunged in April, the first month of the second quarter, Experian found.
Title changes on new vehicles fell by a little over half in April, while title changes on used vehicles plunged 54 percent.
Looking ahead, Experian also forecasts continued growth in the number of borrowers with prime credit scores taking out auto loans. The trend, which has been driven by issues of affordability amid increasing costs of both new and used vehicles, is poised to intensify amid the economic fallout from the coronavirus, researchers indicated.
“As consumers continue to navigate the financial impact of COVID-19, they may consider all options available to them,” Zabritski said.