NEW YORK– There is a new issue “bedeviling” the auto financing market, according to one new analysis: Seasonalized rates of severe delinquency for auto loans are the highest since at least 2006, but the jobs market is strong.
The culprit: soaring automobile prices and high rates, according to the Wall Street Journal.
For example, the report noted that five years ago, there were a dozen models of new cars that sold for less than $20,000. In 2023, there was only one: the spartan Mitsubishi Mirage hatchback, which accounted for about 5,300 of the 7.7 million new vehicles sold in the U.S. in the first half of the year.
Today, however, there are more than 32 models priced above $100,000.
“For the average American, paying off a new car at current prices demands 42 weeks of income, according to data from Cox Automotive, up from around 33 before the pandemic,” the Journal reported. “Bargains have been hard to come by on the used-car lot as well, where the average vehicle listed for about $27,000—up more than 30% from prepandemic levels, according to Cox’s data.”
Average Rate of 9.5%
In addition, as credit unions are well aware, high interest rates have helped push the average new car loan monthly payment north of $750, with an average interest rate of 9.5%, the Journal stated. For used cars, the average rate is above 13.7%, according to Cox. The average term for loans issued over the past three years is nearly six years, according to data from Experia, cited by the Journal.
All of that has contributed to the current “mystery” in the market when it comes to delinquencies and employment levels.
Meanwhile, the Journal noted, “Automakers leaned into their pricing power during the pandemic, giving priority to selling more expensive vehicles and features as supply-chain issues constrained inventories and shoppers had more savings from pandemic stimulus packages. They have continued to boost prices. General Motors said last month that the average price paid by its buyers rose 3% quarter over quarter, to $52,000.”
Some ‘Signs’
According to the Journal analysis, there are some “signs that the market might already be struggling to sustain itself.”
“If consumers rebel against the higher prices, sales—which so far have been stronger than expected—could slow, particularly among the pricey vehicles that have been generating most of the industry’s profits,” the report observed. “And consumers who want to trade in their vehicles might be disappointed with the prices they get.”
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