New vehicle prices top $50,000 amid rising auto loan delinquencies

DETROIT — Look no further than the auto industry for the latest indication that U.S. consumers may be facing a “K-shaped” economy in which the wealthy continue to reap gains while lower-income earners struggle.

The average price paid for a new vehicle last month exceeded $50,000 for the first time, according to Cox Automotive’s Kelley Blue Book reported Monday. Meanwhile, auto loan default rates remain near all-time highs for those with poor credit scores.

Consumers who can afford a new vehicle are going on a buying spree, while those on budgets are being left out of the market, according to Cox Automotive executive analyst Erin Keating.

“While there are many affordable options out there, many price-conscious buyers choose to stay on the sidelines or browse the used vehicle market,” he said in a statement. “Today’s auto market is driven by wealthier households who have access to capital, good credit rates and support the upper end of the market.”

The US economy is becoming increasingly “K-shaped” in the wake of the coronavirus pandemic, with consumers experiencing different realities depending on their income levels, economists have warned.

While wealthy Americans got a boost from rising home values, lucrative stock market returns and affordable loans, low- and middle-income buyers faced tighter budgets and were hit hard by rising inflation.

“We have been talking about the ‘K-shaped’ outlook for the consumer for some time. Some consumers are doing well. Others are doing less well,” Torsten Slok, chief economist at Apollo Global Management, said on Monday. he said. CNBC’s “Squawk on the Street.” “We now also have a K-shaped industrial renaissance for the broader economy, but the consumer faces further headwinds.”

While Slok appeals to the overall U.S. market amid a potential trade war with China, affordability concerns and rising auto loan default rates by subprime buyers are also an issue, he said.

New car buyers have faced increased sticker prices, smaller rebates and higher loan rates since the coronavirus pandemic; especially for those with the worst credit scores.

The average new auto loan rate was around 9% as of the most recent data from August. Cox Automotive’s Dealerway. This includes rates of about 18% to 20% for subprime or “deep subprime” consumers who have lower credit scores and are more likely to default on the loan.

Last month’s price record of $50,080 comes as auto loan delinquencies, delinquencies and repossessions have been on the rise in recent months and years, especially for consumers with subprime loans or a FICO score below 620.

Fitch Ratings reported that 6.43% of subprime auto loans were at least 60 days past due in August, in line with the record high of 6.45% reached in January. Default rates for borrowers with higher scores remained relatively stable.

Consumer Federation of America, a nonprofit advocacy group announced last month U.S. auto finance is “at an inflection point, with Americans carrying more than $1.66 trillion in auto debt.”

The report was published as follows: Consumer Financial Protection Bureau A record number of complaints were received regarding vehicle loans. This follows an analysis from the New York Fed last year that found car buyers with above-average credit scores (620-679) were twice as likely to fall behind as before the pandemic.

Cars.com Earlier this month, Edmunds reported that buyers committing to pay $1,000 or more monthly made up 19.1% of all new car transactions financed in the third quarter, close to the record of 19.3% set in the previous quarter.

Rising default rates, among other concerns, have recently Tricolor, a high-interest car loan provider It crashes unexpectedly.

Tariffs raise costs and reduce affordability, but last month’s record prices were driven by strong sales of all-electric vehicles, Cox’s Keating said. Consumers have flocked to buy electric vehicles ahead of federal tax incentives of up to $7,500 that expire at the end of September.

EVs are generally more expensive than their conventional counterparts; Cox Automotive reported last month that the average transaction price for a new EV was more than $58,000.

“We were expecting to break the $50,000 mark,” Keating said. “This is today’s market and it’s ripe for disruption.”