The Wall Street Journal says auto prices are unsustainable, leading to a surge of delinquencies. I'm not so sure of that. First up, here's the average monthly payment on a new car over the past few years. This takes into account both the rising price of cars and rising interest rates:
That doesn't look so bad. Here's the flow of auto loans into delinquency. This is for all loans, not just the subset the Journal cherry picks:
The delinquency rate has been rising, but at the moment it's returned only to its pre-pandemic level. The news is a little worse for young borrowers, who have delinquency rates slightly above their pre-pandemic level, and a little better for older borrowers, who have slightly lower rates. But the differences are very small, and overall there's no surge of auto loan delinquencies.
It's a good idea to keep an eye on this, especially the 30-day delinquency rate, which is rising fairly steeply, but so far that's about it.
I don't know about you, but $845/mo. sounds way out of control to me. Yes, yes, I'm old and remember the olden days, but still, this seems way high. No wonder used cars are a thing again.
What gets me is that used cars got so expensive and recently looking they are still out of wack on popular models. Luckily my preferred car a Mazsda3 isn't that popular so it's a good deal for those who don't mind driving a smaller sedan.
Yeh. $845 is almost as much as my house payment that includes escrow. I may need to keep my 2004 Corolla running until I am too old to drive. Also, the average cost of a 48-month loan may not have increased much since 2019, but maybe the average monthly payment hasn't changed much because people are buying cheaper cars.
One has to wonder what percentage of the delinquencies are due to suckers and fools buying cars they can't really afford.
But part of the problem is how outrageous car prices are right now. Entry level cars and used cars have gotten far more expensive then they used to be. My sibling needs to get a new car because her Subaru turned out to be somewhat of a lemon so nine years later the engine has serious issues. She is getting sticker shock on equivalent replacements but needs a small SUV/crossover body type to transport her dogs to dog events.
Your sister sure hung in there with the lemon. I would've gotten rid of it way sooner. Luckily our 2007 Chev. HHR is still going strong at 210,000 + miles. It's worth very little on the used car market, but it's priceless to us.
Idk if it makes much of a difference in the monthly payment, but there sure are a lot of people bying TRUCKS. The Ford F150 is the mot popular new vehicle to buy. Truck loans tend to run 60 months rather thatn 48, so I expect that makes a difference in monthly payments, but the overall cost is much, much higher for a truck, even without including the higher interest.
I understand the need to consider inflation rates when looking at these things over time, but wouldn't it be prudent to somehow incorporate the changes in wages compared to the inflation rate as well, since if wages don't rise with inflation, then payments really are harder to make compared to past payments when you adjust *those* values for inflation? It seems unwise to assume that just because someone's payments are "the same" as they were before when adjusted for inflation that their ability to make those payments would have also changed with the rate of inflation to be "the same" now.
Maybe rather than looking at payment amounts over time, we should look at payment amounts as a percentage of median income or something?
Just my 2 cents (or whatever that comes to when adjusted for inflation between the time when "just my two cents" was a common phrase and now 😉
Yeah, I don't know how anyone could afford a car at that kind of cost.
When looking at auto loan performance trends, you should also consider the net charge-off (loss) rate on these loans. The FDIC maintains historical data on loan performance for all insured banks: https://www.fdic.gov/analysis/quarterly-banking-profile/index.html. Note that most auto lending done by banking companies is conducted through nonbank subsidiaries, so the FDIC data represent only a slice of the overall market.
cars suck and ruin our cities and the planet. get an electric cargo bike and move closer to work. https://twitter.com/BrentToderian/status/1693518144000884946?s=20
(also if you instead invest $845 per month in a total stock market index you can retire 10 years earlier than otherwise)
The average loan amount, for new car loans, at finance companies: https://fred.stlouisfed.org/series/DTCTLVENANM#0
I suspect your data, based on 4-year loans (such as the terms of most auto manufacturers), is hiding very large balloon payments after 4 years, requiring refinancing for the vast majority of ppl who take on 4-year loans.
To reinforce this point, look at the average age of automobiles in the US: https://www.bts.gov/content/average-age-automobiles-and-trucks-operation-united-states