While affluent consumers keep spending, lower-income Americans are falling behind, and nowhere is that divide sharper than in the auto industry.
Driving the news: Elevated auto loan delinquencies and near record-high repossessions highlight mounting consumer distress as car ownership becomes increasingly unaffordable
By the numbers: 6.43% of subprime auto loans in August were at least 60 days past due, according to Fitch Ratings. Meanwhile, prime delinquencies are staying low and stable.Â
According to J.D. Power, nearly one in seven car buyers now has a credit score below 650, marking the highest share of lower-credit borrowers taking out car loans since 2016.
And per a report from Consumer Federation of America (CFA) vehicle repossessions are at a multi-year high not seen since the great recession.
Why it matters: Rising delinquencies and record-high repossessions highlight mounting consumer distress as car ownership becomes increasingly unaffordable. The combination of steep prices, high interest rates, and subprime lending has pushed many borrowers to the brink—fueling a surge in defaults and deepening household financial instability.
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Between the lines: A surge in repos means more off-lease and returned vehicles entering wholesale auctions. That could loosen used vehicle supply, especially in scarcer segments.
Meanwhile, subprime lenders could reprice risk and raise minimum FICO cutoffs in response to delinquency trends.
But given the rate of demand, total credit availability for mainstream buyers is stronger than last year, helping sustain sales.
The regulatory backdrop: The CFA, which sent its report to members of Congress, also criticized federal regulators and the Trump administration for failing to address predatory practices in auto lending and retail.
The Federal Trade Commission (FTC) has not filed a “single case” against a car dealer since President Trump appointed new leadership, according to the CFA.
Despite strong public support for the CARS Rule, the FTC declined to appeal the Fifth Circuit Court of Appeals’ decision to strike down the measure.
The CFA noted that the rule could have saved consumers an estimated $3.4 billion annually.
The report added that “the nation’s federal watchdogs, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), have taken significant steps back from oversight and enforcement of predatory practices in the auto market.”
Bottom line: Surging repossessions and mounting auto debt expose growing cracks in U.S. consumer financial stability.
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