Earlier this morning the New York Federal Reserve released their quarterly consumer credit report which detailed, among other things, delinquencies rates on every type of consumer debt from mortgages to student loans.
Now, given the 4.3% unemployment rate in the U.S. (forget the ~95 million people out of the labor force for a moment) and equity markets which reassure us that “everything is awesome” by surging to new highs each and every day, one would assume that delinquency rates on consumer credit would be somewhat subdued relative to recent history and certainly when compared to the ‘great recession’.
And, for the most part, that assumption would be right but for auto loans which stands out as the only class of consumer credit that has consistently suffered from rising delinquencies going all the way back to 2014. Of course, this prompts the obvious question of why auto loans seem to be the outlier.
Luckily, the NY Fed breaks down auto loans into two categories to provide a little more granularity on what’s happening here.
First, taking a look at auto loans provided by traditional banks and credit unions, one can see some marginal deterioration in subprime auto loans. That said, the deterioration is certainly nothing substantial with 90-day delinquencies pretty much in line with 2004/2005 levels and no where near the rates experienced in 2008/2009.
But, a drastically different picture emerges when looking at just the auto loans originated by America’s auto finance captives. To our great ‘shock’, auto OEMs in the U.S. seem to have been much more “flexible” on underwriting standards over the past couple of years resulting in delinquency rates that nearly rival those last experienced at the height of the great recession.
Of course, we’re sure that GM Financial and Ford Motor Credit just got unlucky with their deteriorating credit portfolios…certainly they would never knowingly attempt to game their own short-term financial success by putting millions of Americans into cars they can’t possibly afford, right?