Lower-income Americans in the car market are faced with stagnant wages, surging auto prices, smaller incentives, higher interest rates, and more predatory lenders. The percentage of car buyers with a low FICO credit score (below 650) is the highest in a decade.
Lower-income consumers are often forced to turn to predatory lenders, and their subprime loans, as a last resort. Last year, over 1.7 million cars were repossessed in the U.S., the highest level in 15 years. Auto loans that are 60 days or more overdue hit 6% this year, the highest rate on record according to figures from the Wall Street Journal. The delinquency rates for other consumers has remained relatively stable for now; however, the growing number of Americans who are unable to keep up with their payments reflect a weakness in the U.S. economy beyond just the auto industry.
Auto executives have frequently complained that the auto industry has priced an increasing portion of American consumers out of new car showrooms, and into used car lots, by offering mostly higher-priced trucks and SUVs, and fewer economy cars. The average monthly payment on a new auto loan is over $750, and 20% of these loans have payments of over $1,000 per month. Instead of offering more economical options, Ford announced last month that it intends to lower interest rates for riskier customers, as an incentive to buy vehicles that may be beyond their means. An estimated 12% of GM car loans are now to customers with FICO scores below 620.
