Auto Loan Delinquencies Reach Record Levels

Delinquencies on automotive loans have surpassed the recession-era highs witnessed in 2009, according to an assessment released by S&P Global Mobility on Monday. Fortunately the wealthy will be largely unaffected by this trend, as the issue is isolated primarily to subprime borrowers. For some strange reason, people with more money are having less trouble paying their bills on time. 

Based on the report, vehicle loans more than 60 days past due settled around 1.69 percent over the first three months of 2023. Automotive News covered the release, noting that the recession-era high for both 2009 and 2010 was just 1.46 percent.

S&P Global suggested that the increased delinquency rate could be attributed to inflation and high-interest rates. But that’s just fancy talk for poor people getting kicked in the rear end, not that they’re the only group feeling the pinch. Thanks to unfettered government spending, your dollar doesn’t go as far as it used to, and financial institutions are attempting to curb the trend by shifting to higher interest rates — which just makes things cost more money over time. 

From Automotive News:

"The interest rate rise is squeezing the monthly budget for the average American consumer," Jill Louden, product management associate director for S&P Global Mobility, said in a statement. "Consumers set aside money monthly for housing, vehicles, and insurance, but may not pay other obligations with the same frequency, such as medical bills and credit cards. People need their vehicles to get to work to make money and pay their obligations."

The pandemic saw many lenders retreat from the subprime tier, which made up just 12.3 percent of account volume in the first quarter of 2021 and 12.9 percent in the first quarter of 2022, before recovering to 14.2 percent for the first three months of this year. Subprime volumes hovered around 15 percent before the pandemic.

According to TransUnion/S&P Global Mobility AutoCreditInsights, the high delinquency rate has encouraged captive finance companies, banks, credit unions and independent lenders to tighten underwriting standards. Combined with high interest rates and lower used-car inventories, this has led to a decrease in loan originations. There were 15.3 percent fewer originations in the fourth quarter of 2022 than in the same quarter of 2019, according to S&P Global Mobility.

With income inequality and wage stagnation having grown steadily since the late 1970s, along with vehicle pricing achieving new records in recent years, none of the above should be surprising. But the national response to the pandemic effectively shifted things into overdrive and guaranteed a wonky economy.

Loans from the new-vehicle segment are reportedly doing better overall. But that’s not much of a comfort when sales are still depressingly low. Industry estimates vary and averaged out to there being around 13.8 million new vehicles being sold last year in the United States. That’s an annual decline of nearly 10 percent against 2021 ( which was another bad year) and the lowest seen since the country was exciting the Great Recession in 2011.

No matter how you look at it, auto loans are becoming a massive headache for consumers. Americans have taken on significantly more debt to purchase vehicles in recent years. Data from the Federal Reserve estimates that the average automotive loan is up 41 percent since 2019, accounting for an increase of roughly $24,000.

That's massive and predominantly pertains to younger drivers. An estimated one in five members of Generation Z have claimed that their car payment accounts for over 20 percent of their income. Millennials have it almost as bad and the two groups accounted for a whopping $20 billion in automotive debt falling 90-plus days behind through 2022.

[Image: Pathdoc/Shutterstock]

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