Surge in Auto Loan Delinquencies: Auto Loans in High Gear


Auto loan delinquencies are well below the great recession. But they are well above the years prior to the recession.

Earlier today the Fed released its report on household debt. Interestingly, the Fed did a separate, special report called Auto Loans in High Gear.

Although household debt balances have been rising since mid-2013, their sluggish growth in the fourth quarter was mainly due to a flattening in the growth of mortgage balances. Auto loans, which have been climbing at a steady clip since 2011, increased by $9 billion, boosted by historically strong levels of newly originated loans. In fact, 2018 marked the highest level in the nineteen-year history of the loan origination data, with $584 billion in new auto loans and leases appearing on credit reports, up in nominal terms from 2017’s $569 billion.

The overall performance of auto loans has been slowly worsening, despite an increasing share of prime loans in the stock. The flow into serious delinquency (that is, the share of balances that were current or in early delinquency that became 90+ days delinquent) in the fourth quarter of 2018 crept up to 2.4 percent, substantially above the low of 1.5 percent seen in 2012.

The relative performance between each credit score group stands out immediately; but the increase in delinquency is most obvious among the loans of the two groups of lower-score borrowers, shown by the blue and red lines in the chart below. Borrowers with credit scores less than 620 saw their transitions into delinquency exceed 8 percent in the fourth quarter (annualized as a moving sum), a development that is surprising during a strong economy and labor market.

Seriously Delinquencies by Credit Score

Auto Loan Performance by Age Group

Shifting gears and looking at loan performance by the age of the borrowers [top chart] , some interesting trends emerge. Age-based flows into serious delinquency for auto loans—in the Quarterly Report and reproduced in the chart above—depict a sharp worsening in the performance of the loans held by borrowers under 30 years old between 2014 and 2016. Meanwhile, delinquencies on auto loans held by borrowers over 30 have crept up slowly over time.

Although rising overall delinquency rates remain below 2010 peak levels, there were over 7 million Americans with auto loans that were 90 or more days delinquent at the end of 2018. That is more than a million more troubled borrowers than there had been at the end of 2010 when the overall delinquency rates were at their worst since auto loans are now more prevalent. The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market and warrants continued monitoring and analysis of this sector.

Credit Card Delinquencies on the Rise Too

It's not just autos that are worrisome.

Household Debt Rose 18 Consecutive Quarters to a New Record and Credit Card Stress is Rising.

Auto loan performance bottomed in 2012-2013 in most age groups. Credit card debt started rising for some age groups about the same time.

This economy is on its last legs despite a seemingly robust jobs market.

Mike "Mish" Shedlock

Comments (15)
No. 1-8

auto companies in particular gm and ford can't sell cars without auto-loans and this means subprime auto. used car market is even worse. loan terms keep increasing to the point where nobody is buying cars , they're just renting money.

auto-loans were exempt from graham dodd too so there is no transparency. dealers pad the fees and often the loan amounts exceed the value of vehicle


We know how to fix this.

"Ron Bloom, a senior adviser to Treasury Secretary Timothy F. Geithner, told the panel that the rescue of GMAC was necessary to save the automakers, and that the $17.2 billion price tag was a good deal for taxpayers.

In May 2009, the Obama administration invested $7.5 billion, and the Federal Deposit Insurance Corp. agreed to help GMAC raise a further $7.4 billion from investors by guaranteeing that it would cover any losses.

And in December, the government gave GMAC $3.8 billion in a third round of federal aid."


Even after the recent rise, It's quite surprising how low the default rate is on credit cards among all age groups, compared to the 2003-8 period. It seems that consumers did perhaps learn a lesson from the recession. Now, as I commented on the other debt piece, auto loans and student debt are another story. Both are rising significantly.


As long as unemployment stays extremely low forever, no problem.


It'll be fun to watch the beltway catfight over how to bail this one out when it hits the wall. While it was relatively easy and politically popular for Obama's handlers to wipe out GM bondholders and hand GM to the UAW for their future votes in February, 2009, it'll be a much harder sell to rescue a working Joe from his overpriced, depreciated gonzo wagon, especially if you aren't sure how he votes.