Subprime Auto Delinquencies Worst In Over 30 Years
Building on the theme of low-income consumers and young people burdened by debt and affordability woes, signs of stress are continuing to emerge across the subprime tier of the auto loan space.
A new Bloomberg report on Wednesday, citing data from Fitch Ratings, showed that delinquency rates on subprime auto loans surged to their highest level since 1994, with 6.65% of subprime borrowers at least 60 days overdue on payments in October.
Key data from the Bloomberg report:
Subprime exposure rising: 14.4% of consumers now fall into the riskiest credit category, the highest since 2019 (TransUnion).
Negative equity spike: Over 28% of trade-ins carried negative equity in Q3, as car prices hover above $50,000 and loan balances exceed vehicle values.
Soaring rates: Deep-subprime borrowers face average interest rates of 16% (new cars) and 21.6% (used). Some individual loans reach near-predatory levels above 30%.
The stress first appeared with the bankruptcies of subprime auto lender Tricolor and auto-parts supplier First Brands in September. Then came cracks in Zions and Western Alliance banks, which disclosed they were victims of loan fraud tied to funds invested in distressed commercial real estate.
On top of this, low-income consumers and young people have staged a spending revolt. This triggered Goldman's consumer desk to warn about the worst sentiment in decades and to go "Defcon 1" on the imploding consumer. We've cited a UBS note that explained that weakening consumer trends were spreading from low-income to middle-income households. Compounding this further is the "default cliff" that's rocking Gen Zers and millennials with insurmountable student loan debt.
What's been reported so far:
Cracks emerge:
The Trump administration's renewed focus on addressing the lingering affordability crisis left by the Biden-Harris regime years is expected to accelerate sharply as the midterm election cycle begins.
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