In December, the number of borrowers with shaky credit who were at least 60 days late in making their car payments rose to 5.67 percent, the most since the Great Recession and more than double the 2.68 percent in April 2021, which was the smallest proportion in seven years, Fitch Ratings reported.
A shortage of computer chips and strong consumer demand last year drove the average price of new cars close to $50,000, as we noted in “Average New Car Payment Hits New High” (12 Jul 2022). People unable to find or afford a new vehicle flocked to the used-car market, pushing those prices up as well.
Soaring prices and rising interest rates pushed monthly payments above $1,000 for 16 percent of buyers who financed a new vehicle in 2022’s final quarter, compared to 105 percent a year earlier, data service Edmunds.com found.
TREND FORECAST: As we noted in “Big Banks Expect a Recession” (17 Jan 2023), banks are setting aside extra cash to cover loans that go bad as the economy flounders. That cash will be unavailable to finance mortgages, new businesses, factory improvement, and for other GDP-boosting purposes.
As a result, more investment will be denied to the wider economy, preventing a degree of expansion and moving the U.S. closer to recession. And it should also be noted that with the layoffs increasing so too will defaults on not only auto loans, but mortgages and credit card debt.