Delinquent Subprime Car Loans Remain at Historic High

Car payments are becoming a hurdle for a growing number of lower-income Americans.

That’s according to a report Monday (Oct. 20) by The New York Times, citing data from Fitch Ratings. Those figures show that the share of subprime auto loans that were 60 days or more past due hit a high of almost 6.5% in January and has remained close to that level.

When Fitch first released those findings earlier this year, the group noted that it was the highest since it began collecting that data in 1994.

The NYT report adds that repossessions have also swelled, while drivers are increasingly trading in vehicles that are worth less than they owe, and lenders like Ally Financial and CarMax are cautioning investors about loan performance.

Despite what seems to be — on the surface — a healthy economy, auto market weakness is one of the clearest signs that lower and middle-income families are struggling, the report added. And because many Americans need a car to get around, loan delinquencies serve as a reliable indicator of financial hardship, the NYT said.

“Is this evidence that we have some consumers under stress?” said Jonathan Smoke, chief economist for research firm Cox Automotive. “I would say yes, most definitely.”

Consumers are definitely under stress, as PYMNTS wrote earlier this month, after earnings from companies like Delta Air Lines, Levi Strauss and PepsiCo showed that people are still spending, but have gotten more discerning.

Research by PYMNTS Intelligence from the report “Why Paycheck-to-Paycheck Consumers Can’t Weather a $2,000 Shock” reinforces those numbers.

It found that the share of consumers living paycheck to paycheck remains high, with 68% of Americans in that position as of August. That’s a number that leaves little margin for error when an unexpected expense lands on their doorway. The average household’s liquid savings have dropped by more than 10% in the past 16 months, providing less of a cushion to withstand financial shocks.

At the same time, there’s still some breathing room. Recent Federal Reserve data shows consumers “who still have dry powder in the form of available credit but are using it judiciously as the year winds down,” PYMNTS added.

The Fed data also showed a 5.5% annualized contraction in revolving credit, a category that includes but is not limited to credit cards.

“These findings contextualize the cautious optimism voiced by Delta, Levi Strauss and PepsiCo executives,” the report continued. “Discretionary categories are holding up only where consumers perceive clear, lasting value.”