Vehicle repossessions jump 23% over the past year

An uptick in missing auto loan payments is doing more than damaging credit scores, it’s leading to a widespread surge in vehicle repossessions. 

According to data from Cox Automotive (reported by Bloomberg), repossessions have increased a staggering 23% so far in 2024 and are up 14% compared to before the pandemic. 

Behind the surge: During COVID-19, the U.S. government issues a couple of rounds of stimulus checks to keep the economy afloat. 

• With more cash in hand, consumers applied some of that money to vehicle purchases. In total, the government gave out $837.5 billion in stimulus funds. These funds, along with PPP loans for businesses, boosted vehicle sales by an estimated 1.75 million units in 2020, according to the Federal Reserve. 

• On top of that, the average auto loan rate in 2020 was 5.76% reported Experian which helped introduce new leniency measures by lenders.

But what goes up, must come down. Even though inflation is slowing down, the overall cost of cars is elevated because interest rates are higher. The average interest rate for a new car is now 7.3%, and for a used car, it's 11.5%, according to Edmunds. This means that the average monthly payment for a new car is $739, and for a used car, it's $549.

What’s more: 4.4% of auto loans were at least 90 days past due in the first quarter of 2024. This is a meaningful increase of 13.4% compared to the same period last year and a 32.83% rise over the past decade, says the New York Fed.

On top of that: Skyrocketing MSRPs during the pandemic meant that savings from lower interest rates at that time were offset by exorbitant vehicle prices. Those monthly payments are now catching up to consumers, especially in the subprime category. In June, 5.62% of subprime borrowers were at least two months behind on their payments, according to Fitch Ratings. This is just slightly down from the record high seen in February.

What does all this mean for the car market?

1. To protect themselves from losses, lenders are getting stricter with their underwriting criteria. For example, Carvana has become more picky about who it lends to and Ally has tightened standards since 2023. 

2. The used car market could see an influx of supply at the wholesale level helping to make up for the lack of lease returns. 

3. Dealers will likely keep struggling to approve buyers. They will also have a tougher time getting them into higher-priced vehicles. 

Bottom line: The automotive industry finds itself in a perfect storm for repossessions. Between high prices and burdensome interest rates, people are struggling to make ends meet. But key economic indicators are moving in the right direction. Inflation is cooling and slowly inching down to the Fed’s target of 2%. Although experts say interest rate cuts probably won’t happen this year, 2025 could see some stabilization in the market.

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