NY Fed: Auto loan delinquencies at highest point since 2010

DETROIT (AP) — Borrowers are behind in their auto loan payments in numbers not seen since delinquencies peaked at the end of 2010, according to the Federal Reserve Bank of New York.

More than seven million Americans were 90 or more days behind on their car loans at the end of last year, one million more than eight years ago, according to a report from the bank. That’s a potential sign of trouble for the auto industry and perhaps the broader economy.

The New York Fed reported that auto loan delinquency rates slowly have been worsening, even though borrowers with prime credit make up an increasing percentage of the loans.

The 90-day delinquency rate at the end of 2018 was 2.4 per cent, up from a low of 1.5 per cent in 2012, the bank reported. Also, delinquencies by people under 30 are rising sharply, the report said.

But economists and auto industry analysts say they aren’t sounding an alarm yet. The number is higher largely because there are far more auto loans out there as sales grew since the financial crisis, peaking at 17.5 million in 2016. The USD584 billion borrowed to buy new autos last year was the highest in the 19-year history of loan and lease origination data, according to the report.

Other signs still point to a strong economy and auto sales that will continue to hover just under 17 million per year for the near term.

A long row of 2019 911 Carrera GTS cabriolets sits at a Porsche dealership in Littleton, Colorado. – AP

“I think it’s a little too soon to say that the sky is falling, but it’s time to look up and double check to make sure nothing is about to hit you on the head,” said Charlie Chesbrough, senior economist for Cox Automotive.

United States (US) consumers have about USD1.27 trillion worth of auto debt, which is less than 10 per cent of the total consumer borrowing tracked by the New York Fed. Mortgages and student loans are both larger categories than auto debt.

The jump in unpaid auto loans is a worrying sign for low-income Americans, though not necessarily a sign that an economic downturn is near.

“The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labour market and warrants continued monitoring and analysis of this sector,” researchers at the New York Fed concluded in a blog post.

Average new car sales prices and loan payments have been increasing steadily for the past five years, hitting USD36,692 last month, according to Kelley Blue Book. Loan payments averaged USD547.75 per month last year.

Prices are high because people are switching in dramatic numbers from lower-priced sedans to more expensive SUVs and trucks. Because they keep the vehicles longer, they’re loading up the rides with luxury options such as leather seats, sunroofs, high-end sound systems and safety technology.