Behind the Wheel of Rising U.S. Auto Loan Delinquencies

This commentary reviews the increase in U.S. auto loan delinquencies.

Key Highlights:
-- Higher for longer interest rates and elevated cost of living are pressuring consumers' budgets, which combined with record high monthly payments for auto loans are driving newly delinquent auto loans to their highest level since the financial crisis.
-- We expect the credit performance for captive auto finance companies under our coverage to weaken but to remain manageable, reflecting their heavily prime consumer focused loan portfolios.
-- Conversely, we expect continued pressure on credit performance and earnings for noncaptive auto finance companies under our coverage, which generally tend to lend to a more nonprime consumer base.

"The recent rise in delinquencies over the past four quarters despite relatively healthy labor markets is an early sign that certain consumers are under stress from higher cost of living and elevated interest rates on floating consumer debt such as credit cards. We would expect those noncaptive auto finance companies lacking scale and the accompanying ability to generate good pre-provision income to face financial pressure should the economy meaningfully slow and unemployment rise, leading to higher credit losses," said Anthony Tran, Assistant Vice President -- North American Financial Institution Ratings.