Car Loan Delinquencies Keep Increasing, Who Is to Blame?

Matt Posky
by Matt Posky
car loan delinquencies keep increasing who is to blame

Not that you couldn’t have figured this one out all by yourself, but car loan delinquencies are reaching record levels once again. The culprits are the usual suspects. Wages have failed to keep pace with inflation for a couple of generations, current inflation rates are at record highs, and those loan-accommodation programs set up during the pandemic are all expiring now. Basically, regular people are becoming broke so they’re starting to be forced into tough financial decisions – including whether to make their car payments against heating their homes or feeding their families.

We’ve already covered record vehicle pricing, dealer markups, the growing popularity of subprime status, and the fact that average loan terms are becoming comically long. But it’s all coming together like a pileup on the expressway.

On Tuesday, TransUnion reported that the percentage of American loans that are at least 60 days behind in their payments reached 1.65 percent in the third quarter of 2022. That’s roughly 500,000 people who are delinquent and this is the highest rate witnessed in over a decade.

While your author understands that some readers may be skeptical of information coming out of one of the many consumer credit reporting agencies that exist to normalize perpetual debt, TransUnion’s status also means it routinely aggregates information on over one billion individual consumers and has a wealth of data at its disposal.

“Consumers still want to stay current as best that they can. It’s just this inflationary environment is making it challenging,” Satyan Merchant, senior vice president of TransUnion, told CNBC in an interview. “It leaves fewer dollars in their pocket to make the auto loan payment, because they’ve got to pay more for eggs and milk and other things.”

Back in 2017, when the media began noticing that average Americans were being bumped out of the new vehicle market, the average transaction price for an automobile had spiked to $33,200 and the U.S. saw 1.8 million vehicles repossessed. Today, the average transaction price is somewhere around $48,000, according to Kelly Blue Book, with annual repossessions exceeding 2.2 million vehicles.

That’s an unprecedented amount of movement in just five years and primarily impacts high-volume models purchased by regular people. For 2022, the most commonly repossessed vehicles included the Ford F-150, Chevy Silverado, Honda Civic, Honda Accord, Toyota Camry, Nissan Altima, Toyota Corolla, Honda CR-V, and Dodge Ram.

While the sunsetting of loan-accommodation programs put in place during the pandemic is also being faulted by TransUnion, it’s worth noting that these deals were really only there to help consumers buy time while government-supported COVID restrictions were in place and the economy rebounded. But the latter item never really happened, meaning they probably just managed to delay the surging delinquencies we’re now experiencing – something TransUnion seems to agree with.

“There has been this effect where the delinquency that may have occurred over the last few years is really just pushed out or delayed because that consumer didn’t have to make payments or their status was on an accommodation. So now some of those are hitting,” Merchant said.

The credit firm stated that approximately 200,000 auto loans that previously took advantage of the pandemic-era accommodation are now listed as 60 days delinquent. Meanwhile, there are another 100,000 accounts that are more than 60 days delinquent and still in accommodation programs that have yet to end.

Despite this, Merchant told CNBC that TransUnion still sees the automotive loan market as healthy – citing that the average interest rate for a new-vehicle loan climbed to 5.2 percent in the third quarter, while the average rate for a used vehicle loan hit 9.7 percent. But what’s healthy (and profitable) from a business perspective isn’t always sustainable or smart. The situation is stretching out loan terms so far that people are paying far more for mainstream products than they would have had to otherwise. Loans lasting 84 months are no longer uncommon and allow those juicy interest rates more time to increase the long-term cost of vehicle ownership.

While perhaps less than ideal, Merchant believes there will still be money to be made so long as people remain employed. Sure, some customers will be in debt up to their eyeballs and forced into increasingly unfavorable loan terms. But, as long as they can squeak by and not starve to death, all these financial institutions will be just fine – something you’re probably relieved to hear if you’re trying to decide how many expired cans of food you’ll need to eat to make next month’s car payment.

Though maybe it’s best not to paraphrase TransUnion’s VP in a way that actually explains the ramifications of the overarching situation and just let the man speak for himself.

“If we get into a position where employment starts to be a challenge in the United States and unemployment increases, that is when the industry will really start to be concerned about a consumer’s ability to pay their auto loans,” Merchant explained.

[Image: pathdoc/Shutterstock]

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7 of 71 comments
  • DenverMike DenverMike on Nov 14, 2022

    What IS taught is instant gratification and they’re special and deserve it right stinkin’ now with all the options since the payment are so low thanks to instantly upsidedown 200 month loan. Losers have to save for it. Use someone else’s money.

    • See 4 previous
    • DenverMike DenverMike on Nov 15, 2022

      It's all fun and games until you're elderly, living in a van conversion on $600 a month.

      I heard a thing recently that the number one goal of every business is to acquire real estate and keep acquiring. It didn't make sense at first, but everyone should run there lives like a successful profitable business.

      Screw the rest of the nonsense.

  • Cprescott Cprescott on Nov 14, 2022

    You buy the car, sign the loan, and since you have to be an adult so to do, then you are at fault for being stupid buying too much car for your budget.

  • Varezhka Given how long the Mitsubishi USA has been in red, that's a hard one. I mean, this company has been losing money in all regions *except* SE Asia and Oceania ever since they lost the commercial division to Daimler.I think the only reason we still have the brand is A) Mitsubishi conglomerate's pride won't allow it B) US still a source of large volume for the company, even if they lose money on each one and C) it cost too much money to pull out and no one wants to take responsibility. If I was the head of Mitsubishi's North American operation and retreat was not an option, I think my best bet would be to reduce overhead by replacing all the cars with rebadged Nissans built in Tennessee and Mexico.As much as I'd like to see the return of Triton, Pajero Sport (Montero Sport to you and me), and Delica I'm sure that's more nostalgia and grass is greener thing than anything else.
  • Varezhka If there's one (small) downside to the dealer not being allowed to sell above MSRP, it's that now we get a lot of people signing up for the car with zero intention of keeping the car they bought. We end up with a lot of "lightly used" examples on sale for a huge mark-up, including those self-purchased by the dealerships themselves. I'm sure this is what we'll end up seeing with GR Corolla in Japan as well.This is also why the Land Cruiser has a 4 year waitlist in Japan (36K USD starting MSRP -> buy and immediately flip for 10, 20K more -> profit) I'm not sure if there's a good solution for this apart from setting the MSRP higher to match what the market allows, though this lottery system is probably as close as we can get.
  • Jeff S @Lou_BC--Unrelated to this article but of interest I found this on You Tube which explains why certain vehicles are not available in the US because of how the CAFE measures fuel standards. I remember you commenting on this a few years ago on another article on TTAC. The 2023 Chevrolet Montana is an adorable small truck that's never coming to the USA. It's not because of the 1.2L engine, or that Americans aren't interested in small trucks, it's that fuel economy legislation effectively prevents small trucks from happening. What about the Maverick? It's not as small as you think. CAFE, or Corporate Average Fuel Economy is the real reason trucks in America are all at least a specific dimension. Here's how it works and why it means no tiny trucks for us.
  • Gabe A new retro-styled Montero as their halo vehicle to compete against the Bronco, Wrangler and 4Runner. Boxy, round headlights like the 1st generation, two door and four door models, body on frame.A compact, urban truck, Mighty Max, to compete against the Maverick. Retro-styled like the early 90s Mighty Max.A new Outlander Sport as more of a wagon/crossover to compete against the Crosstrek and Kona. Needs to have more power (190+ HP) and a legit transmission, no CVT.A new Eclipse hybrid to compete against the upcoming redesigned Prius. Just match the Prius's specs and make it look great.Drop the Eclipse Cross, I am not sure why they wanted to resurrect the Pontiac Aztec. Keep the Mirage and keep it cheap, make the styling better and up the wheel size. The Outlander seems fine.I like the idea of some sort of commercial vehicle, something similar in size to the Promaster City but with AWD.
  • El scotto Will Ford ever stop putting a V-8 in Mustang GT's? Not as long as Bill Ford is around. I haven't shopped for an F-150 in years; can you still get a V-8 in one? Y'all have that one pair of really comfortable shoes you wear when you go shopping? Not buying gas and low maintenance will make EVs your comfortable shoes. Virtual signalling? Naw, they're slip-ons.