It’s hard to get a read on the economy right now, with unemployment at a 53-year low against headlines about layoffs at companies like Amazon and Microsoft. CEOs and economists seem to disagree on whether recession or bankruptcy lies ahead.
One thing is for sure: More and more Americans are struggling to make car payments. Banks have been warning for months about a potential wave of missed loan payments.
Now, the latest data from Cox Automotive, for January, shows that the delinquency rate for loans 60 or more days past due is up 2% from December—and up 20.4% from a year ago. Of the delinquent loans, 1.89% were in bad debt, up from 1.84% in December and the highest level since 2006.
Among subprime loans in January, 7.3% were delinquent, up from 7.11% the previous month, and the rate was also the highest in 2006.
Last week, American Car Center — a used car retailer that targets consumers regardless of their credit history — unexpectedly went out of business, leaving customers across the country confused about how (and to whom) to continue paying.
Defaults and repossessions
Loan defaults, meanwhile, rose 6.2% in January from December and were up 33.5% from a year ago, according to Cox Automotive.
Car repossessions, not surprisingly, are climbing. At the Manheim car auction firm, the number of recalled cars increased by 11% in 2022 compared to the previous year, according to Bloomberg.
High interest rates have played a role in Americans struggling with car payments. The average interest rate increased 12 basis points to 9.51% in January, according to Cox Automotive, after jumping 53 basis points in December.
In the fourth quarter of last year, 15.7% of consumers who financed a new vehicle committed to monthly payments of $1,000 or more – the highest, from 10.5% and 6.7% in the last quarter of 2021 and 2020, respectively. , according to Edmunds.
“Because these auto loans are generally unaffordable to begin with, that means every month, borrowers are getting closer to the financial edge,” Kathleen Engel, a law professor at Suffolk University, told Bloomberg.
News emerged this week that Ford has filed for a patent on technology that could alert drivers to missed car payments. It can be used to remotely turn off the air conditioner, radio, or vehicle engine, or beep incessantly. The massive patent application even suggests that autonomous vehicles could drive to “more convenient” locations for tow trucks to collect.
“We submit patents on new inventions as a normal business, but not necessarily as an indication of new business plans or products,” Ford said in a statement.
But as Americans struggle to make car payments, the news is hardly comforting.
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