Car Loan delinquencies rose again

In yet another bad sign for the auto industry, car loan delinquencies rose again in the third quarter, putting up to $22.9 billion at risk for banks, finance companies and automakers who dole out loans directly to consumers.

Melinda Zabritski, director of automotive credit for credit-rating agency Experian's auto group, says a preliminary study of 30-day delinquencies shows an 8.1% increase over a year earlier. That means $22.9 billion worth of loans are 30 days late.

Even more striking is the increase in 60-day delinquency rates. Those loans more often turn into repossessions. They are up 12.7%, putting $7 billion at risk of being unpaid. "This is not insignificant," Zabritski says.

Peter Turek, automotive vice president in credit rater TransUnion's financial services group, says delinquency rates have risen all year. "Consumers are continuing to feel pinched in the disposable-income areas," he says, "so we fully expect the delinquency rate will increase through the end of the year."

If loan delinquencies keep rising, banks aren't likely to loosen lending standards that continue to depress already dismal car sales. October and September sales fell below a million, in part due to limited loan access.

Bobbie Britting, research director for consumer lending at consultancy TowerGroup, says when people stop paying bills on time, banks and other lenders tighten their standards. That's already happening in auto loans, notably when General Motors' financing arm, GMAC, recently stopped making car loans to anyone with a credit score below 700.

"Delinquencies definitely make banks more hesitant," she says. "They change their credit policies, they lower the amount they're willing to loan. … Part of it is that they don't have as much money to loan today."

Car-shopping site Edmunds.com predicts 1.6 million vehicles will be repossessed this year, says Phil Reed, senior consumer advice editor.

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Car Loan delinquencies rose again

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