America's $1.7 Trillion Auto Loan Market Is Headed for a Crash, per Reuters
The strain is showing in the delinquency data
America's $1.7 trillion auto loan market is headed for a crash, per Reuters. Auto loans are now one of the biggest sources of household debt, bigger than credit cards. And the strain is showing: 1 in 5 Americans is behind on at least one loan, the highest since 2010, and the average car on the road is now nearly 13 years old, a record.
America's $1.7 trillion auto loan market is headed for a crash, per Reuters, with auto loans now a bigger source of household debt than credit cards.
Subprime is where the structure cracks first
A Reuters Breakingviews commentary published October 13 warned the $1.7 trillion market heads for a crash, pointing to subprime loans backing asset-backed securities, where 60-day delinquencies sit near historic highs around 6%, per Fitch Ratings data cited in the piece. More than 30% of recent subprime loans will not be paid off until the vehicle is over 12 years old, up from just 7% at the end of 2019, which leaves borrowers paying for repairs on aging cars they still owe money on.
The broader numbers support the concern. Auto loan balances reached $1.71 trillion in the second quarter, per the New York Fed, a 56% jump from a decade ago, and 5.49% of auto loan balances were 90 days or more past due, above financial-crisis levels. Repossessions have risen 43% over the last two years, and negative equity on trade-ins has climbed to an average of $5,114 on used cars and $7,023 on new ones, as longer loans and smaller down payments leave borrowers underwater from the start.
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Options market and stocks to watch
Auto credit is the consumer stress test the market keeps coming back to: the lenders in XLF carry the loan books, while GM and F carry the demand side if repossessions and tighter credit start cutting into sales. Subprime ABS delinquencies near 6% are the number that decides whether this stays a warning or becomes an event.
Watch the New York Fed's quarterly household debt report for the serious-delinquency rate, and follow consumer credit on the Unusual Whales news feed.
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