Americans Falling Behind on Car Payments: Delinquency rate on subprime auto loans records

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One of the cylinders in the U.S. economic engine is causing some sputtering.

Since the pandemic, buyers on auto-dealer lots have encountered surging sticker prices and smaller incentives from automakers to lessen the blow. To afford an automobile, more consumers, especially lower-income families, have resorted to buying used cars and taking out longer loans.

Now, more are falling behind on their loans, signaling that lower-income consumers are struggling to afford payments as wages stagnate and unemployment ticks higher. While the economy has remained strong, and Wall Street has kept buying subprime auto loans, the auto market is evidence that not all is well under the hood.

The percentage of new-car buyers with credit scores below 650 was nearly 14% in September, roughly one in seven people, J.D. Power said last month. That is the highest for the comparable period since 2016.

And the portion of subprime auto loans that are 60 days or more overdue on their payments hit a record of more than 6% this year, according to Fitch Ratings, while delinquency rates for other borrowers have remained relatively steady.

An estimated 1.73 million vehicles were repossessed last year, the highest total since 2009, according to data from Cox Automotive, an industry-research firm.

Delinquencies have leveled off but have remained higher than in the prepandemic period, economists say.

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Elevated new-car prices have been weighing on the industry for years, with average monthly payments rising to more than $750. Nearly 20% of loans and leases now exceed $1,000 in monthly payments.

Auto executives routinely cite a need to make more affordable cars, in part because some consumers have ended up shopping for used vehicles instead. Yet automakers often favor pricey trucks and luxury sport-utility vehicles because they produce fatter profits.

Ford last month said it would target low-credit buyers with lower interest rates to unload unsold F-150 pickups, its top-selling model. A Ford spokesman said that only 3% to 4% of the company’s portfolio of loans are backed by what it defines as higher-risk customers.

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