* Automobile affordability is a significant financial burden, with 80% of new car purchases in 2024 being financed due to high prices and interest rates.
* Auto loan debt has surged to $1.644 trillion, becoming the largest component of non-mortgage consumer debt, surpassing student loans and credit cards.
* Rising interest rates and longer loan terms have increased monthly payments, leading to higher delinquency rates, now at their highest since the Great Financial Crisis.
* Despite stabilized car sales, the financial strain from higher debt burdens is growing, potentially impacting the broader economy negatively.
Automobile Affordability
Buying a car is usually the second largest financial decision a consumer makes, next to owning a home.
However, only 66% of American households are homeowners, while 92% of all households own cars.
As a result, for more than one quarter of all households, buying a car is their largest single financial purchase.
Because cars are so expensive, most people can’t afford to buy the car outright for cash. According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, it takes 36.2 weeks of income to purchase a new vehicle. This is down from the peak of 41 weeks in December 2022.
Consequently, in 2024, 80% of new car purchases were financed.
New car prices averaged $48,297 in September 2024. This is down 3% from the high in November 2022, but are up 49% over the past ten years. This exceeds the CPI, which has grown 32.9% over the same time period.
Auto Loan Debt
In the New York Fed’s recently released “Quarterly Report on Household Debt and Credit” auto loans increased by $19 billion in 3Q24 to an all-time high of $1.644 trillion.
This represents a 3.1% increase y/y, and a 25% jump over the past five years.
Auto Debt Outstanding has become the largest component of Total Non-Mortgage Consumer Debt. At 31% of Total Consumer Debt, Auto Loans exceed Student Loans at 30%, Credit Cards at 22% and Home Equity Loans at 7%.
Auto Loans are also the fastest growing segment of Total Consumer Debt. Since 3Q2014, Auto Debt has increased by 76%, while Total Consumer Debt has risen by only 49.5%.
Interest Rate On Auto Loans
Interest rates on 60-month auto loans have more than doubled from the low of 4.05% in 2015 to the current 8.40%. This is the highest rate in more than twenty years. The recent Fed rate cuts haven’t filtered through to auto loan rates yet, as while money market rates are lower, longer term bond yields have actually risen.
Auto Loan Delinquencies
The higher interest rates, combined with high car prices, have created an increased financial burden for new car buyers. As a result, they are extending the length of their loans to mitigate the higher payments. Roughly 70% of new vehicle loans are for terms of greater than 60 months.
The Average Monthly Payment for new car loans in 3Q24 rose to $736. This is up from $563 four years ago.
The strain of the larger car payments on consumer’s budgets are beginning to appear.
Delinquency rates are starting to explode. From the low of 4.96% during 4Q21, benefitted by two rounds of pandemic related government stimulus payments, 30-day auto delinquency rates continue to spike, to the 3Q24 level of 8.12%. This is the highest delinquency rate in 14 years, since the tail end of the Great Financial Crisis (GFC.)
Loans that are 30 days delinquent can go one of two ways. The lateness could have been inadvertent, and the borrower simply makes the loan current the next month. Or, the borrower is struggling financially, and their payments continue to slip.
Not only are 30-day delinquencies increasing, but serious delinquencies are also growing.
Serious delinquency levels, defined as 90 days or more delinquent, have also risen from the low of 3.73% in 4Q22, to the current 4.59%.
This can be seen in the Transition to Serious Delinquency level chart below. From the low of 1.56% in 4Q21, the Transition to 90 Day Delinquencies has shot up to 2.90%. This is the highest level since 2Q10, again during the tail end of the GFC.
Overall Car Sales Have Stabilized
Following the disruption of the pandemic, total vehicle sales have stabilized around 16 million SAAR for the past two years. This is below the pre-pandemic level of 17.5 million SAAR.
Conclusion
Despite this stabilization of car sales at a lower rate, Total Auto Debt has grown to record levels. This is a function of higher car prices, longer loan periods and higher interest rates. Together, these factors are putting a financial strain on consumers that is reflected in larger monthly loan payments, resulting in higher delinquencies. This trend is increasing.
Perhaps this is a partial cause of consumer complaints about the economy which showed up in pre-election surveys. Higher loan burdens don’t appear in inflation, or employment, or GDP statistics. But further deterioration in the consumer because of the debt load will ultimately filter through to the economy in a negative way.
* Auto loan debt has surged to $1.644 trillion, becoming the largest component of non-mortgage consumer debt, surpassing student loans and credit cards.
* Rising interest rates and longer loan terms have increased monthly payments, leading to higher delinquency rates, now at their highest since the Great Financial Crisis.
* Despite stabilized car sales, the financial strain from higher debt burdens is growing, potentially impacting the broader economy negatively.
Automobile Affordability
Buying a car is usually the second largest financial decision a consumer makes, next to owning a home.
However, only 66% of American households are homeowners, while 92% of all households own cars.
As a result, for more than one quarter of all households, buying a car is their largest single financial purchase.
Because cars are so expensive, most people can’t afford to buy the car outright for cash. According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, it takes 36.2 weeks of income to purchase a new vehicle. This is down from the peak of 41 weeks in December 2022.
Consequently, in 2024, 80% of new car purchases were financed.
New car prices averaged $48,297 in September 2024. This is down 3% from the high in November 2022, but are up 49% over the past ten years. This exceeds the CPI, which has grown 32.9% over the same time period.
Auto Loan Debt
In the New York Fed’s recently released “Quarterly Report on Household Debt and Credit” auto loans increased by $19 billion in 3Q24 to an all-time high of $1.644 trillion.
This represents a 3.1% increase y/y, and a 25% jump over the past five years.
Auto Debt Outstanding has become the largest component of Total Non-Mortgage Consumer Debt. At 31% of Total Consumer Debt, Auto Loans exceed Student Loans at 30%, Credit Cards at 22% and Home Equity Loans at 7%.
Auto Loans are also the fastest growing segment of Total Consumer Debt. Since 3Q2014, Auto Debt has increased by 76%, while Total Consumer Debt has risen by only 49.5%.
Interest Rate On Auto Loans
Interest rates on 60-month auto loans have more than doubled from the low of 4.05% in 2015 to the current 8.40%. This is the highest rate in more than twenty years. The recent Fed rate cuts haven’t filtered through to auto loan rates yet, as while money market rates are lower, longer term bond yields have actually risen.
Auto Loan Delinquencies
The higher interest rates, combined with high car prices, have created an increased financial burden for new car buyers. As a result, they are extending the length of their loans to mitigate the higher payments. Roughly 70% of new vehicle loans are for terms of greater than 60 months.
The Average Monthly Payment for new car loans in 3Q24 rose to $736. This is up from $563 four years ago.
The strain of the larger car payments on consumer’s budgets are beginning to appear.
Delinquency rates are starting to explode. From the low of 4.96% during 4Q21, benefitted by two rounds of pandemic related government stimulus payments, 30-day auto delinquency rates continue to spike, to the 3Q24 level of 8.12%. This is the highest delinquency rate in 14 years, since the tail end of the Great Financial Crisis (GFC.)
Loans that are 30 days delinquent can go one of two ways. The lateness could have been inadvertent, and the borrower simply makes the loan current the next month. Or, the borrower is struggling financially, and their payments continue to slip.
Not only are 30-day delinquencies increasing, but serious delinquencies are also growing.
Serious delinquency levels, defined as 90 days or more delinquent, have also risen from the low of 3.73% in 4Q22, to the current 4.59%.
This can be seen in the Transition to Serious Delinquency level chart below. From the low of 1.56% in 4Q21, the Transition to 90 Day Delinquencies has shot up to 2.90%. This is the highest level since 2Q10, again during the tail end of the GFC.
Overall Car Sales Have Stabilized
Following the disruption of the pandemic, total vehicle sales have stabilized around 16 million SAAR for the past two years. This is below the pre-pandemic level of 17.5 million SAAR.
Conclusion
Despite this stabilization of car sales at a lower rate, Total Auto Debt has grown to record levels. This is a function of higher car prices, longer loan periods and higher interest rates. Together, these factors are putting a financial strain on consumers that is reflected in larger monthly loan payments, resulting in higher delinquencies. This trend is increasing.
Perhaps this is a partial cause of consumer complaints about the economy which showed up in pre-election surveys. Higher loan burdens don’t appear in inflation, or employment, or GDP statistics. But further deterioration in the consumer because of the debt load will ultimately filter through to the economy in a negative way.
