A new report from the Federal Reserve Bank of New York is raising alarm bells among economists. The report shows seven million Americans are 90 days delinquent or more on their auto loan, the highest number since the Great Recession in 2010. The findings are “surprising during a strong economy and labor market,” according to the report.
However, auto-loan delinquencies aren’t affecting everyone equally. According to the report, people under the age of 30 and those with credit scores below 620—subprime—are seeing the highest percentage of auto-loan delinquencies of at least 90 days. Eight percent of 90-day-plus auto-loan delinquencies are held by borrowed with a subprime auto loan. People under the age of 30 own four percent of such delinquencies.
The increase in auto-loan delinquencies is due to overall growth in auto loan participation with more subprime borrowers than ever securing car loans. Many of these subprime loans are originating at auto finance companies—companies that specialize in loaning money often specializing in subprime lending—compared to loans from banks and credits unions. Auto finance companies include GM Financial owned by General Motors, Ford Credit, and others owned by automakers. However, there are plenty of private auto finance companies separate from automakers like small dealership institutions with their own finance department and independent financial institutions.
But this still doesn’t tell the whole story. Digging down deeper into the data, the Federal Reserve Bank of New York separated auto finance companies from similar lending companies owned by automakers. According to the report, 50 percent of the loans issued by auto finance companies are delinquent compared to just 19 percent of loans issued by automaker-associated lending companies.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector,” the report concludes.
This comes as new car prices continue to rise, monthly payments increase, and interest rates tick upward. Last year marked the highest level of new loans and leases appearing on credit reports, hitting $584 billion. In 2017, loans and leases accounted for $569 billion in new debt.