Auto-loan delinquencies in US at its highest since 2012

Number of sub-prime borrowers who fell well behind on car payments was the highest since the second quarter of 2010

NEW YORK • More Americans than ever are at least three months behind on their auto loans, a sign that the United States economy may have little growth left in the tank.

The number of loans that are at least 90 days late exceeded seven million at the end of last year, the highest total in the two decades that the Federal Reserve Bank of New York has kept track.

Expressed as a percentage of total debt, the delinquency rate is the highest since 2012, as overall borrowing has also increased. The data shows not all Americans are benefiting from the strong labour market, New York Fed economists say.

Consumers with the weakest credit have driven deteriorating performance of auto debt: The share of sub-prime borrowers who fell well behind on car payments the last three months of the year was the highest since the second quarter of 2010.

"Disappointing dynamics in sales and delinquencies in the auto sector could be a foretelling sign," said Ms Yelena Shulyatyeva, senior US economist at Bloomberg Economics. "Recent developments confirm our estimates that the US economy has entered the late stages of the business cycle even though the recession odds remain low" and the cycle's end is not yet in sight.

Delinquencies are on the rise even as auto lenders have shifted business to more credit-worthy borrowers. Total car loan originations climbed to a record US$584 billion (S$793 billion) last year.

"Despite auto debt's increasing quality, its performance has been slowly worsening," Ms Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, said in a statement.

"Growing delinquencies among sub-prime borrowers are responsible for this deteriorating performance and younger borrowers are struggling most acutely to afford their auto loans."

The deterioration in sub-prime auto loans comes as vehicle prices have soared and financing rates have crept higher, making it harder to afford a new car. Consumers paid an average of more than US$36,000 for a new vehicle last year, up roughly 3 per cent, according to vehicle valuation and automotive research company Kelley Blue Book.

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A version of this article appeared in the print edition of The Straits Times on March 09, 2019, with the headline 'Auto-loan delinquencies in US at its highest since 2012'. Print Edition | Subscribe