For U.S. consumers, the juggling act of which bills to pay — and when — is real.
To that end, the loan data from bank earnings over the past several weeks signal that consumers are falling behind on the payments necessary to keep their cars on the road.
The overall trend has been one where the covering the monthly car payments becomes onerous as inflation has made everything more expensive. If the cost of groceries or shelter or go up — nondiscretionary expenses — then there’s less left over to pay the car loans.
The latest data from PYMNTS show that 12% of consumers spent more than they earned in the six months preceding October. And in triaging their monthly obligations, 27% of households pulled from savings to manage credit card debt alone. Pandemic-era savings have been largely exhausted.
Data from the banks illustrate the pressures in an age where as many as 15% of car buyers had a monthly payment of at least $1,000 in the last quarter of 2022 — up from 10.5% a year earlier.
In Wells Fargo’s case, the company’s earnings announcement in the middle of last month, we see that earnings from the auto segment were down in the March quarter, as measured year over year, to $392 million. The company’s quarterly supplement shows that auto loan originations were down by 32% year over year to $5 billion. The delinquency rate stands at 2.3%, up from 1.7% last year, for loans in this segment that are at least 30 days past due. Net loan charge-offs stood at 0.9%, up from 0.7% a year ago.
JPMorgan’s own results show auto loans and leased assets were $80.3 billion in the March quarter, down from $85.7 billion last year. But the banking giant posted a boost in loan and lease originations, at $9.2 billion in the most recent quarter, up from $8.4 billion last year. The net charge off rate for the segment was 0.4% in the March period, up from 0.2% last year. The 30-day+ delinquency rate was up to 0.9% from last year’s 0.6%.
Ally Financial represents a significant tell here, as the company’s results last month give granular insight into loan originations that fell from $2 billion year over year to a March quarter tally of $8.5 billion. The loans show that loan originations for non-prime consumers was well off peaks, at a recent $0.8 billion, down from the recent high of $1.2 billion in last year’s second quarter, and where prime borrowers, at a recent $2.8 billion in originations was well below a quarterly high of $4 billion notched during 2022.
The total 30+ day delinquency rate on the auto loan book, as per the Ally data, show a March quarter of 3.2%, a jump over 2% last year. The net charge-off rate on the loans was a recent 1.7%, soaring above the 2022 March quarter rate of 0.6%.
As to the trouble down the road, as noted in this space late last month repossession companies are gearing up for an acceleration in their own activities. Fitch Ratings show the percentage of subprime auto borrowers at least 60 days late on their bills at 5.3%, compared to a seven-year low of 2.6% in May 2021.