Lending subprime auto loans to drivers has reached its highest point in a decade, and U.S. auto debt hit a record $1.16 trillion in 2016. This spells bad news for automakers, who may soon be the victims of their own generous deal-making in the next financial crisis.
The biggest issue automakers face in holding most of the sub-prime auto loan pie is the rising number of late payments and delinquencies. U.S. automakers and their in-house financing tactics make up three-quarters of all subprime auto loans and almost half of all total auto loans, according to the Federal Reserve Bank of New York via Bloomberg:
Indeed, delinquencies on vehicle loans, though rising, are still lower than late payments on student loan debt and credit card balances. So preppers getting ready for global economic collapse shouldn’t panic about car payments just yet.
But they should worry—just like executives at the big automakers. Barring a few finance startups, the manufacturers are the ones loaning money to the riskiest buyers. They have more incentive to push a sale and, unlike a bank, make money on both the loan and the product, if all works out right.
Recently, carmakers have been focused on moving SUVs and trucks, which tend to carry higher profit margins than vanilla sedans and cost a little more as well. Lowering credit standards a bit and stretching repayment windows up to six or seven years has helped drive business to record levels, with 17.55 million vehicle sales in all last year.
This increase in late payments is also disproportionately affecting automakers when compared to credit unions and banks, which have seen improved statistics on their loan payments.