We Haven't Been This Behind on Car Loans Since 2010

Borrowers are behind in their auto loan payments in numbers not seen since delinquencies peaked at the end of 2010, according to the Federal Reserve Bank of New York. More than 7 million Americans were 90 or more days behind on their car loans at the end of last year, 1 million more than eight years ago, according to a report from the bank. That's a potential sign of trouble for the auto industry and perhaps the broader economy, but economists and auto industry analysts say they aren't sounding an alarm yet, reports the AP. Here's what you need to know:

• The New York Fed reports that auto loan delinquency rates slowly have been worsening, even though borrowers with prime credit make up an increasing percentage of the loans. The 90-day delinquency rate at the end of 2018 was 2.4%, up from a low of 1.5% in 2012, the bank reports. Also, delinquencies by people under 30 are rising sharply, the report says.

• But the number is higher largely because there are far more auto loans out there as sales grew since the financial crisis, peaking at 17.5 million in 2016. The $584 billion borrowed to buy new autos last year was the highest in the 19-year history of loan and lease origination data, according to the report. Other signs still point to a strong economy and auto sales that will continue to hover just under 17 million per year for the near term.
• "I think it's a little too soon to say that the sky is falling, but it's time to look up and double-check to make sure nothing is about to hit you on the head," says Charlie Chesbrough, senior economist for Cox Automotive.
• But the Washington Post calls it a "red flag," explaining that because so many Americans rely on cars to get to work, they'll generally make that payment before others. "When car loan delinquencies rise, it is usually a sign of significant duress among low-income and working-class Americans," the Post notes.
• The NY Fed's take, in its blog post: "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."

• US consumers have about $1.27 trillion worth of auto debt, which is less than 10% of the total consumer borrowing tracked by the New York Fed. Mortgages and student loans are both larger categories than auto debt.
• Average new car sales prices and loan payments have been increasing steadily for the past five years, hitting $36,692 last month, according to Kelley Blue Book. Loan payments averaged $547.75 per month last year.
• Prices are high because people are switching in dramatic numbers from lower-priced sedans to more expensive SUVs and trucks. Because they keep the vehicles longer, they're loading up the rides with luxury options such as leather seats, sunroofs, high-end sound systems, and safety technology. Also, the Federal Reserve has been raising interest rates, causing auto loan rates to go up.
• Jeff Schuster, an executive at the forecasting firm LMC Automotive, says the higher prices and payments mean that some people may have taken on more than they can handle. "Not that they're unemployed or they can't afford a vehicle," Schuster notes. "They may have bought too much of a vehicle."

(Read more on the delinquencies here.)