Report: Subprime Buyers Not Paying Auto Loans

Matt Posky
by Matt Posky

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]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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8 of 88 comments
  • 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.

    • See 5 previous
    • 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.

  • Aja8888 Folks, this car is big enough to live in. Dual deal: house and car for $7 large.
  • Astigmatism I don't think tax credits will put me in this league, but if I could swing it, I would 1000% go for a restomod EV Grand Wagoneer:
  • FreedMike I like the looks of the Z, but I'd take the Mustang. V8s are a disappearing breed.
  • Picard234 I can just smell the clove cigarettes and the "oregano" from the interior. Absolutely no dice at any price.
  • Dartdude The Europeans don't understand the American market. That is why they are small players here. Chrysler Group is going to die pretty soon under their control. Europeans have a sense of superiority over Americans that is why the Mercedes merger didn't work out and almost killed Chrysler. Bringing European managers aren't going to help. Just like F1 they want our money. We need Elon Musk to buy out Chrysler, Dodge and Ram from Stellantis.