As high car prices and persistent inflation strain household budgets, a growing number of Americans are falling behind on their car payments, an ominous sign for the U.S. economy.
In the early days of the epidemic, car repossessions tumbled when the government sent millions of Americans stimulus checks. They have risen as sky-high prices for used and new cars forced consumers to take bigger loans.
In December, the percentage of subprime auto borrowers who were at least 60 days late on their bills climbed to 5.67%, a major increase from a seven-year low of 2.58% in April 2021, according to Fitch Ratings. It marks the steepest rate of Americans struggling to make their car payments since the 2008 financial crisis.
The price of used and new vehicles went up last year because of a semiconductor shortage as well as other factors in the global supply chain. Consumer demand remained strong, driving prices higher, even though there were fewer cars being produced.
The average cost of a new car is close to $50,000, a record for the end of 2022, as prices started to subside.
The pain of higher car prices has been compounded by rising interest rates.
The average new auto loan rate went up to 8.02% in December, up from 5.15% a year ago, according to Cox Automotive. New-vehicle affordability was at the lowest level of 2022 because of the steeper stick prices.
Rising interest rates and high car prices have pushed their monthly payments above $1,000 for many Americans.
The percentage of consumers paying at least $1,000 a month for their cars increased to a new record in the last three months of 2022, according to Edmunds.com, an online resource for auto inventory and information. In the fourth quarter, 16% of consumers who financed a new car have payments that are that expensive, up from 10.5% a year ago.
If consumers don't pay their loans, that's what's going to cause problems ahead in the auto industry.