With fears of a global recession at an all-time high, economists are looking for the telltale early warning signs of collapse — and they may just have found one automotive-fueled trend that spells doom. More and more US consumers are falling behind on their auto repayments, pushing repossession rates up.
Despite many predicting that the pandemic would see a reduction in demand in new cars, consumers — some armed with stimulus cheques and excess vacation money — were ready to snap up deals. Additionally, at the beginning of the pandemic, lenders were more accommodating to those who fell behind on payments. But with unemployment rising and inflation forcing the erosion of many households’ savings, the trend of forfeiting automobiles looks set to rise.
Read: More And More Americans Are Struggling To Pay Their Auto Loans
Rising costs have not only strained family budgets in terms of essentials but have also seen the prices of gas, car insurance, and repairs all skyrocket. Meanwhile, NBC News reports that, since 2019, the average monthly payment for a new car is up by some 26 percent, while one in six buyers is spending more than $1,000 a month on a vehicle.
With a recession on the cards for 2023 and no end in sight for high interest rates, repo companies are already inundated with work. This is partly due to the fact that many repo agencies closed in 2020, with workers forced to find other employment. But, according to Jeremy Cross, the president of International Recovery Systems in Pennsylvania, the influx of subprime borrowers stems from 2020. “Over the last two years, vehicle prices were inflated because there was no new car supply. People were still buying like crazy because they had a lot of stay-at-home cash, they had inflated credit scores, so it was like a recipe for disaster,” said Cross.
There’s some mildly good news, though. While defaults are expected to increase, analysts don’t expect repossession rates to get as bad as what was witnessed in 2008 and 2009. Rather, it will likely breach pre-pandemic levels. For the third quarter of 2022, the percentage of auto loans that were overdue by 30 days was 2.2 percent, compared to 2.35 percent in 2019. But to put that into perspective, that number was as high as 4 percent in 2009.
