#Delinquencies

With dealer lots starting to fill back up with product after years of lean inventories that encouraged salespeople to ask for absolutely ludicrous prices, the Federal Reserve has found that lenders are declining would-be borrowers at a record-setting pace. 

The reasons for this are many. Annual percentage rates have come up, requiring consumers to pay more money over time that lenders just aren’t certain they’ll see a return on. More people are also defaulting on loans across the board and inflationary pressures are poised to make the issue worse since the dollar just doesn’t go as far as it used to.  

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.

As you’re undoubtedly aware, now isn’t the best time to purchase a new vehicle. While you can currently sell your ride for more than it’s realistically worth, the economy is anything but stable as inflation and supply shortages gum up the works. A lack of semiconductor chips has caused the automotive industry to stutter endlessly throughout 2021, with the issue getting so bad that some manufacturers have been building unfinished vehicles just to give their employees something to do. Ford is even mulling over a strategy to ship those units directly to dealerships so they’ll have something on the lot — effectively making its retail network responsible for final assembly.

But the logistics nightmare is only part of the story. Automotive loans are also becoming untenable as terms stretch out endlessly. Cars continue getting more expensive and the average consumer is losing their buying power. The preferred solution is for financiers to extend agreements so customers can continue making the same monthly payments while accruing more on interest over the duration. While effective in the short term, and bound to make banks money as we’re all driven deeper into debt, one wonders how this plays out on a grander scale.

Just as total auto loan balances in Q4 2013 climb to $798.5 billion, the United States Chamber of Commerce has called upon the Consumer Financial Protection Bureau to draw up a detailed compliance guide for auto lenders returning to the fray.