According to the Wall Street Journal, 10.9% of subprime borrowers with outstanding auto loans or leases are more than 60 days past due, up from 8.7% just a year ago. This is the highest level seen since January 2019. This comes on the heels of a rather ominous Q4 2020 report that showed the highest quarterly level of 60-plus day delinquencies since 2005.
While delinquencies for all portfolio types are still being reported as down on a year-over-year basis by the S&P/Experian Auto Default Index, I believe the subprime figures represent the first sign that a “day of reckoning” could be on the way in the auto lending industry.
This does not come as a surprise to many, including myself. In fact, just last July I wrote an article for Auto Remarketing magazine that urged lenders to be wary about high profile positive indicators that were being masked by a variety of factors. In my view, they were unquestionably worse than what the data showed. I believe this what we are starting to see today.
Just like last July, I am not here to send a doom and gloom message. Nor am I suggesting that government assistance or corporate goodwill was inappropriate during a time that millions lost their jobs through no fault of their own. However, we are now facing a reality that requires us to be to be practical and forward-looking. As pandemic-related government assistance and goodwill from corporations continue to diminish, we can expect to see rising delinquencies across all auto portfolio types.
Therefore, now is the time for lenders to prepare. Many will face a need to augment staffing levels to deal with these increases. Strategies that appropriately balance fiscal responsibility with taking care of those customers who truly still need help must be developed.
Last year, I cited Kroll Bond Rating Agency who pointed out that modifications made by lenders will “simply delay the inevitable” as lenders’ ability to collect cash was reduced so dramatically.
The inevitable has arrived and it’s time for the industry to react appropriately.
If your company requires assistance planning for and reacting to increased delinquencies, Servicing Solutions stands ready to help. Our leadership team has decades of experience in the auto lending industry and is accustomed to the ebbs and flows of changing economic environments. Reach out to us at firstname.lastname@example.org or 844.877.6583.