Bloomberg recently reported that the percent of subprime auto borrowers at least 60 days past due rose to the highest level since this data was first collected in 1994.
First, new and used car prices are up 21% and 35%, respectively, since the onset of the Covid-19 pandemic. Second, the interest rate on auto loans provided by banks has risen during the same period from 5.3% to 8.3%, and rates for those with lower credit scores reach 14% for new cars and up to 21% for used vehicles. The combination of higher prices and interest rates increases the monthly payment by 30% for those with higher credit scores and a great deal more for subprime borrowers. As a result of this stress, Cox Automotive estimates that repossessions will reach 1.5 million this year, a 25% increase over 2022.
The economy has been very resilient due to strong consumer spending but this statistic as well as a significant decrease in personal savings suggest that this is a time to watch carefully for cracks in the consumer juggernaut.