An alarming number of Americans with auto loans are struggling to make monthly payments. Auto loan performance saw further deterioration in December, and loan delinquencies jumped. Of all loans, severely delinquent ones have reached the highest rate since the financial crisis about 15 years ago.
Recall last month. We pointed out the auto sector finds itself at a critical inflection point as a crushing auto loan crisis nears. The note was titled "Perfect Storm Arrives: "Massive Wave" Of Car Repossessions And Loan Defaults To Trigger Auto Market Disaster, Cripple US Economy." It provides readers with a roadmap and how the dominos might fall in triggering what Tesla CEO Elon Musk recently warned: "Potentially, the biggest financial crisis ever."
New bone-chilling data via Cox Automotive sheds light on the rapidly deteriorating auto loan market. The report said loans delinquent by more than two months increased by 5.3% and jumped 26.7% from a year ago.
And here's where the alarm bells start sounding:
Of all loans, 1.84% were severely delinquent, which was an increase from 1.74% in November and the highest rate since February 2009.
In December, 7.11% of subprime loans were severely delinquent, increasing from 6.75% the prior month. The subprime severe delinquency rate was 163 basis points higher than a year ago, and the December rate was the highest in the data series back to 2006.
Cox Automotive said even though an increasing amount of people are missing loan payments -- this has yet to manifest into defaults:
Loan defaults declined 13.5% from November but were up 16.9% from a year ago. The annualized auto loan default rate in December was 2.56%, which was lower than the 2.98% rate in December 2019. The default rate in 2022 was 2.28%, up from a low of 1.98% last year but still lower than the 2.90% rate in 2019.
And perhaps the reason why defaults have yet to surge is that lenders don't consider the borrower to be in default until 90 to 120 days late of insufficient payments. This might suggest that a default wave could be hitting over the next few quarters as consumers are tapped out by 20 months of negative real wave growth, depleted personal savings, and maxed-out credit cards. All those folks who bought cars they didn't need nor could afford with +$1,000 monthly payments during Covid will be financially ruined when the next recession hits.
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