A growing number of Americans are failing to pay their car payments, a sign that low- and middle-income families — the basis of consumption in the United States — are beginning to feel the financial squeeze more strongly.
According to Fitch Ratings, in an investigation of the The New York Timesdelays in high-risk financing (subprime) lasting more than 60 days reached 6.5% in January and remain close to this level.
Defaults led to an increase in vehicle repossessions and warnings from institutions such as CarMax and Ally Financial about the poor performance of the auto loan portfolio.
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Pressure on family budgets
While the U.S. economy still appears robust, with the stock market high and unemployment low, the rise in auto loan delinquencies reveals the silent deterioration in disposable income among consumers.
“It is clear that part of consumers are under stress,” said Jonathan Smoke, chief economist at consultancy Cox Automotive, to the North American newspaper.
Even among borrowers with the best credit history, default rates have increased: around 2% of loans are very late in installments, compared to 1.8% a year earlier, according to the same consultancy.
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The New York Federal Reserve has also seen rising delinquency rates across all income and credit brackets, pointing out that the combination of high interest rates, persistent inflation and the depreciation of used cars is putting pressure on families.
End of stimuli
During the pandemic, aid programs and emergency checks increased savings and improved family credit. With low interest rates, banks extended deadlines and reduced requirements, which boosted vehicle sales.
But as of 2021, the scenario has reversed: prices have risen, savings have run out and wages have lost pace, especially among low-income workers. The resumption of student debt payments in 2023 also reduced budget space, pushing some consumers to the limit.
Limited impact
Despite the deterioration, analysts interviewed by the newspaper do not see a risk of systemic contagion. Automotive loans represent less than 10% of total household debt, and credits subprime are just a fraction of that total, according to the Fed.
Furthermore, the new concessions show better performance, as a result of stricter credit criteria adopted since 2023.
“The problem is still contained, but it reveals the beginning of broader financial pressure on American families,” summarizes Mark Zandi, chief economist at Moody’s Analytics.
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