It’s hard to get a strong reading on the economy right now, with the unemployment rate at record lows in 53 years opposition to the headings of mass layoffs in companies like Amazon and Microsoft. CEOs and economists seem to disagree on whether it is a eCONOMY or soft landing ahead.
One thing, however, is in little doubt: Many Americans are struggling to make their car payments. Banks have warned for months part of a potential wave of defaulted debt.
Today, the latest data from Cox Automotive, for January, shows that the delinquency rate for loans 60 or more days past due rose 2% from December—and rose 20.4% from last year. Of delinquent loans, 1.89% were seriously delinquent, an increase from 1.84% in December and the highest rate since 2006.
Among subprime loans in January, 7.3% were seriously delinquent, an increase from 7.11% the previous month, and the rate was also the highest in 2006.
Last week, American Car Center—a used car dealer that targets consumers regardless of their credit history—unexpectedly. went out of businessleaving customers all over the country confused how (and to whom) to continue making their payments.
Default and repossessions
Loan defaults, meanwhile, rose 6.2% in January from December and rose 33.5% from a year ago, according to Cox Automotive.
Auto repossessions, not surprisingly, are on the rise. At the auto auction company Manheim, the number of recovered cars increased by 11% in 2022 compared to the previous year, according to Bloomberg.
High interest rates play a role in Americans struggling with their car payments. The average interest rate rose 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 purchasing a new vehicle committed to a monthly payment of $1,000 or more — the highest ever, up from 10.5% and 6.7% last year. quarter of 2021 and 2020, respectively, according to Edmunds.
“Because these auto loans are often unaffordable at the beginning, that means that every month, borrowers are getting closer to the financial edge,” said Kathleen Engel, a law professor at Suffolk University, Bloomberg said.
News emerged this week that Ford has filed for a patent on technology that could be significant harangue drivers about unpaid car payments. It can be used to remotely turn off the air conditioning, radio, or car engine, or non-stop beeping. The extensive patent application even suggests that an autonomous vehicle could drive itself to a location that is “more convenient” for a tow truck to collect it.
“We submit patents on new inventions as a normal course of business, but they are not necessarily indicative of new business or product plans,” Ford said in a statement.
But as Americans struggle to make their car payments, the news is not reassuring.
Learn how to navigate and build trust in your business with The Trust Factor, a weekly newsletter that explores what leaders need to succeed. Sign up here.