An alarming number of Americans with auto loans are having difficulty making the monthly payments. Auto loan yields deteriorated further in December and loan delinquencies soared. Of all the loans, those with severe delinquencies have reached the highest rate since the financial crisis some 15 years ago.
Remember last month. We note that the auto sector is at a critical inflection point as a crushing auto loan crisis approaches. The note was titled “Perfect Storm Arrives: ‘Massive Wave’ of Auto Repossessions and Loan Defaults to Unleash Auto Market Disaster and Crisis US Economy.” It gives readers a roadmap and how the dominoes could fall to trigger what Tesla CEO Elon Musk recently warned: “Possibly the biggest financial crisis in history.”
Chilling New Data via cox automotive sheds light on the rapidly deteriorating auto loan market. The report said loans past due for more than two months rose 5.3% and were up 26.7% from a year earlier.
And this is where the alarms begin to sound:
Of all loans, 1.84% were seriously delinquent, up from 1.74% in November and the highest rate since February 2009.
In December, 7.11% of subprime loans were seriously delinquent, up from 6.75% the previous month. The severe delinquency rate for subprime mortgages was 163 basis points higher than a year ago, and the December rate was the highest in the data series since 2006.
Cox Automotive said that even though an increasing number of people are missing loan payments, this has yet to manifest itself in defaults:
Loan defaults were down 13.5% from November but up 16.9% from a year earlier. The annualized auto loan default rate in December was 2.56%, which was lower than the rate of 2.98% in December 2019. The default rate in 2022 was 2.28%, above the low of 1.98% last year, but still below the rate of 2.90%. in 2019.
And perhaps the reason defaults haven’t risen yet is that lenders don’t consider a borrower in default until they are 90 to 120 days late on insufficient payments. This could suggest that a wave of delinquencies could be coming in the coming quarters, as consumers are exhausted from 20 months of negative real wave growth, depleted personal savings and depleted credit cards. All those people who bought cars they didn’t need and couldn’t afford with monthly payments over $1,000 during Covid will be financially ruined when the next recession hits.
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