Auto defaults fall below 1% for first time this year


Auto finance defaults are back below the 1-percent level for the first time this year, halting a stretch above that level dating back to last August.

This week, S&P Dow Jones Indices and Experian released data through April for the S&P/Experian Consumer Credit Default Indices, and the auto segment dropped 6 basis points on a sequential basis to land at 0.99 percent.

During the past 12 months, the reading has been as high as 1.11 percent, which came last October. The most recent time analysts spotted the metric below 1 percent was last August, when it was 0.95 percent.

The default reading is repeating its cyclical pattern now that it’s dropped for three consecutive months, something S&P and Experian have reported for the past four years. In 2015, 2016 and 2017, the cycle softened to its low point in June, when readings dipped to 0.85 percent, 0.91 percent and 0.82 percent, respectively.

Meanwhile, turning back to the April data, the composite rate — which represents a comprehensive measure of changes in consumer credit defaults — decreased 4 basis points to 0.92 percent.

The first mortgage default rate also declined by 4 basis points to 0.68 percent.

Analysts added the bank card default rate rose 8 basis points to 3.86 percent. They pointed out bank card default rates have been higher or unchanged for seven consecutive months, and now are at their highest level since June 2012.

Furthermore, S&P and Experian watched how four of the five major cities included in the report enjoyed decreases in composite default rates in April.

Chicago had the largest drop — down 14 basis points to 0.90 percent.

The default rate for Dallas fell 9 basis points to 0.82 percent, while the rate for New York declined 5 basis points to 0.90 percent.

The rate for Los Angeles edged 1 basis point lower to 0.59 percent.

Miami was the only major city that experienced an increase in default rates, spiking 65 basis points to 2.78 percent.

Analysts noted that the composite default rate for Miami has increased to its highest level in more than five years, while default rates have remained stable for the other four major cities.

David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, shared more context about what all of the latest metrics mean.

“The overall economic picture is positive, with continued moderate growth, a further decline in unemployment to below 4 percent, and quite strong consumer sentiment,” Blitzer said. “Inflation remains at or below 2 percent, a level where most consumers tend to ignore small or periodic price increases.

"Among a wide range of economic indicators, there are two that hint of possible future concerns for some consumers,” he continued. “First, wage gains have not accelerated as the economy has improved. Average hourly earnings are rising at a 2.6 percent annual rate, only slightly faster than inflation. Second, home prices are increasing by 6 percent annually with some regions seeing even larger gains. Neither of these has affected consumer credit defaults so far.”

Blitzer also mentioned that consumer borrowing is expanding as the economy continues to grow.

“Revolving credit — borrowing through bank and credit card accounts — is growing at about the same pace as the overall economy,” Blitzer said. “Mortgage debt outstanding is rising at a similar pace.

“Non-revolving loans, including auto loans, are growing faster than the overall economy,” he continued.

“As today’s modest default levels show, current debt levels are manageable. The fear is that when the next recession comes, debt levels will have climbed far higher, while personal savings will have remained modest at best,” Blitzer went on to say.

Jointly developed by S&P Indices and Experian, analysts noted the S&P/Experian Consumer Credit Default Indices are published monthly with the intent to accurately track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien.

The indices are calculated based on data extracted from Experian’s consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month.

Experian’s base of data contributors includes leading banks and mortgage companies and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.