Report: Subprime Buyers Not Paying Auto Loans

Matt Posky
by Matt Posky
report subprime buyers not paying auto loans

As the resulting complications of coronavirus lockdowns obliterate the economy, reports have emerged that subprime car buyers are beginning to skip payments. Delinquencies were expected to come up a bit this year, even before local governments started issuing lockdown orders, but the swift economic impact of these health initiatives have proven wider-reaching than anyone anticipated.

Normally, the status of the more volatile subprime market is a useful tool in assessing the financial well-being of the country as a whole — sort of an early warning device for economists. However, getting an accurate read on who stopped paying could be hard during the pandemic. Many lenders are offering deferral programs to keep one or two delinquent payments from turning into full-blown defaults. Still, the initial signs are about what you’d expect, and it plants another economic red flag into American soil.

Credit Acceptance, a U.S. auto lender focused on customers subprime credit scores, issued a warning on Tuesday. Referencing a recent filing with the Securities and Exchange Commission (SEC), the company said, “the current outbreak of COVID-19 has adversely impacted our business, and the continuance of this pandemic and any future outbreak of any other highly contagious diseases or other public-health emergency could materially and adversely affect our business, financial condition, liquidity and results of operations.”

It then suggested many other subprime auto finance providers should buckle up, because it doesn’t anticipate this being an isolated incident. It’s also postponing its first-quarter financial statement until the end of June while also pushing back a planned shareholders meeting. However, while Credit Acceptance felt comfortable in delaying what’s likely to be a rather unpleasant financial report, it did manage to get out a warning that subprime buyers are getting behind on their payments in its regulatory filing with the SEC.

Bloomberg shared a portion of that document on Tuesday, noting that the lender had witnessed a “sharp drop-off in payments” as people impacted by COVID-19 prioritize other things:

As unemployment soars, borrowers are putting off payments or “reallocating resources,” Credit Acceptance said in a regulatory filing Monday, explaining that it needs more time to publish a quarterly report. New lending is also slowing as dealerships across the U.S. are forced to shutter their showrooms, the company said.

“A continued disruption in our workforce, decrease in collections from our consumers or decline in consumer loan assignments could cause a material adverse effect on our financial position, liquidity and results of operations,” Credit Acceptance wrote.

The firm is among the first to report an uptick in delinquencies as some lenders offer forbearance, hoping that what consumers need is time to get through the pandemic so they can resume payments. Ally Financial Inc. said on Monday that about 25 percent of its auto-loan customers have taken advantage of its payment-deferral program.

That’s substantial, but questions remain. While unemployment has taken off like a rocket, it’s unknown how many of those lost positions will re-emerge on the other side of the pandemic. Likewise, loan forgiveness programs are supposed to help customers weather the inclement economic situation so they can return to making payments later. That, in addition to how long the public puts up with various states’ lockdown orders and how nasty the pandemic ultimately becomes, will probably be the deciding factor in how this plays out. This is also preliminary data, though we have an inkling subsequent reports will be similar over the next few months.

[Image: pathdoc/Shutterstock]

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  • Randyinrocklin Randyinrocklin on Apr 21, 2020

    All of this pain and suffering, because of two quack doctors that had fake models, created by dumb elites who think they know better than anyone else. What a joke, with their wild a** predictions and prognostications that were waaaay off.

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    • MiataReallyIsTheAnswer MiataReallyIsTheAnswer on Apr 23, 2020

      @Lou_BC Lefty? Leftie? Leftist? "D", none of the above - the word you're looking for is "idiot".

  • Carrera Carrera on Apr 22, 2020

    Looking at the photo of this article...isn't he Bashar from the Israeli anti-terror show FAUDA? By the way, great show.

  • Darren Mertz In 2000, after reading the glowing reviews from c/d in 1998, I decided that was the car for me (yep, it took me 2 years to make up my mind). I found a 1999 with 24k on the clock at a local Volvo dealership. I think the salesman was more impressed with it than I was. It was everything I had hoped for. Comfortable, stylish, roomy, refined, efficient, flexible, ... I can't think of more superlatives right now but there are likely more. I had that car until just last year at this time. A red light runner t-boned me and my partner who was in the passenger seat. The cops estimate the other driver hit us at about 50 mph - on a city street. My partner wasn't visibly injured (when the seat air bag went off it shoved him out of the way of the intruding car) but his hip was rather tweaked. My car, though, was gone. I cried like a baby when they towed it away. I ruminated for months trying to decide how to replace it. Luckily, we had my 1998 SAAB 9000 as a spare car to use. I decided early on that there would be no new car considered. I loathe touch screens. I'm also not a fan of climate control. Months went by. I decided to keep looking for another B5 Passat. As the author wrote, the B5.5 just looked 'over done'. October this past year I found my Cinderella slipper - an early 2001. Same silver color. Same black leather interior. Same 1.8T engine. Same 5 speed manual transmission. I was happier than a pig in sh!t. But a little sad also. I had replaced my baby. But life goes on. I drive it every day to work which takes me over some rather twisty freeway ramps. I love the light snarel as I charge up some steep hills on my way home. So, I'm a dyed-in-the-wool Passat guy.
  • Paul Mezhir As awful as the styling was on these cars, they were beautifully assembled and extremely well finished for the day. The doors closed solidly, the ride was extremely quiet and the absence of squeaks and rattles was commendable. As for styling? Everything's beautiful in it's own way.....except for the VI's proportions were just odd: the passenger compartment and wheelbase seemed to be way too short, especially compared to the VI sedan. Even the short-lived Town Coupe had much better proportions. None of the fox-body Lincolns could compare to the beautiful proportions of the Mark was the epitome of long, low, sleek and elegant. The proportions were just about perfect from every angle.
  • ToolGuy Silhouetting yourself on a ridge like that is an excellent way to get yourself shot ( Skylining)."Don't you know there's a special military operation on?"
  • ToolGuy When Farley says “like the Millennium Falcon” he means "fully updatable" and "constantly improving" -- it's right there in the Car and Driver article (and makes perfect sense).
  • Master Baiter New slogan in the age of Ford EVs:FoundOnRoadDischarged