Subprime Auto Market Looking Extra Rough in 2021
The subprime auto market looks to be in poor health as the number of borrowers with outstanding loans that are more than 60 days overdue continues increasing. While the number has a tendency to rise and fall between seasons, the general trend toward indebtedness has been going up since 2015, with increasingly more customers boasting lackluster credit scores becoming incapable of footing their transportation bill.
Delinquencies skyrocketed in 2020, as government lockdowns pushed many out of work and now appear to be increasing due to a recovery plan that primarily seems to be serving cooperate interests and the wealthiest socioeconomic classes. Though it should be said that middle and lower-class families had been losing ground for decades, at least according to the latest Pew Research data. Pandemic-related complications only served to accelerate the existing financial disparities on all fronts. We are now on course for poorer people to have even less money moving forward, especially in the world’s most developed countries.
I wonder why so many people are defaulting on their car loans…
The Wall Street Journal provided some hard figures regarding the increased number of U.S. delinquencies this month and framed the matter as one stemming from an “uneven economic recovery and a deep divergence between those who can navigate the coronavirus downturn and those who can’t.”
Sadly, those who cannot are likely to see their vehicle repossessed as they experience another ding to their already low credit score.
From WSJ:
A greater share of people with low credit scores has been falling behind on their car payments in recent months, a sign of stress among consumers whose finances have been hit hard by the pandemic.
Some 10.9 [percent] of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7 [percent] a year prior, according to credit-reporting firm TransUnion. It marked the sixth consecutive month-over-month increase and the highest level in monthly data going back to January 2019.
More than 9 [percent] of subprime auto borrowers were more than 60 days past due in the fourth quarter, the highest quarterly figure in data going back to 2005.
“We are seeing the separation between the consumers who are back on their feet and those who aren’t,” said Satyan Merchant, head of TransUnion’s automotive financing arm.
While breaks were issued to some renters and business owners, average folks tended to benefit most from postponements on paying back federally backed student loans and mortgages. The Wall Street Journal suggested this gave a potentially unfair advantage to homeowners and college graduates, both of which are likely to have stronger financial footing than someone claiming neither attribute. Some lenders also decided to provide temporary relief on monthly payments at the start of the pandemic. But that leniency began to evaporate by the middle of 2020, which resulted in a surge of defaulting customers beginning last April.
We are now in a situation where the number of subprime borrowers has declined too, with many people becoming disinterested in accumulating debt or incapable of being approved for a loan. But those with excellent credit scores appear to be able to make their payments with historically good consistency. That’s likely to offer little consolation to those occupying the former group, however.
[Image: pathdoc/Shutterstock]
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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This can only be because of government enforced business closures due to Covid. Otherwise, the US is awash in stimulus money and the economy is starting to roar in places that have fully reopened. My state just increased it's min wage to $11 an hour and dropped it's mask mandate. EVERY place that relies on hourly wage employees is hiring right now...every fast food restaurant, every retailer has signs out begging for people. For someone willing and capable of holding a very basic job, there's no reason to be defaulting on a car loan right now in many places.
@28-Cars-Later Are you hacking my computer? You make numerous excellent points. I will add this: we live in a world where people are unwilling to take personal responsibility. Many want more, better, now. And not just the subprime lenders.... at the other end, we have Bill Gates, Jeff Bezos, Elon Musk, et al. The "robber barons" of 1890-1940 were more civic-minded, and their wealth came from THINGS that really improved people's lives, making life easier and safer, like cars (Ford), oil (Rockefeller), steel (Carnegie), food (Heinz) The current crop makes money making life more "convenient." Bezos pays subsistence wages, and no income taxes. We know this, and still, Americans buy his stuff--helping put Sears and K-Mart out of business. Gates controls PCs and has probably caused as much stress to users of MS Office as good has come from it. In short, most Americans support "doing the right thing." They just want some one else to do it. While some decline in America's position in the world was inevitable (in the 1950s and early 1960s, Germany and Japan were still in ruins--they, and the rest of the world would progress then, that was inevitable--just like China would starting in the 1990s), many decisions of our elite (we have the veneer of a Republic, but the reality of cartel capitalism) have exacerbated the challenges of the the lower 70%-85%. Now as the chickens come to home to roost, the "elite" must of necessity, find other real or imagined culprits or enemies. They are master of obfuscation! Back to cars--we live in a world awash with technology, yet I cannot think of a single NEW vehicle that excites me enough to want to actually buy it and keep it. That's a metaphor. As for sub-prime lending.... the Fed will bail out the lenders, and those who profit hugely from manipulating the emotions, or needs, of the sub-prime borrowers, those lending CEOs and senior execs and venture (vulture?) capitalists will be made whole and more...after all, they have bought an paid for both US parties.