Auto lenders sound the alarm on rising delinquencies

Ally Financial expects late-stage delinquencies to rise in the coming months
By Sam Bourgi
•
18 September 2024
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auto loans, cars

One of America’s largest auto lenders says more of its customers are falling behind on their car payments.

Speaking at a recent conference hosted by Barclays, Ally Financial CFO Russell Hutchinson said more Americans are feeling the burden of inflation and other affordability constraints.

“We’re clearly dealing with a cohort of borrowers who have been struggling with [the] cost of living and now are struggling with an employment picture that’s worse,” said Hutchinson.

Ally expects late-stage delinquencies—or payments that are at least 60 days past due—to rise in the coming months.

“Our sense is that's probably going to expand in coming months just given the size of this population of struggling borrowers,” said Hutchinson.

According to research by Mordor Intelligence, Ally is the largest auto lender in the country.

Auto loan delinquencies are a growing problem in post-pandemic America.

According to the New York Fed’s latest research, 8% of auto loan balances transitioned into delinquency in the second quarter—the highest share since the Global Financial Crisis.

Worse, more Americans are being rejected for auto loans due to income and credit constraints. According to the New York Fed, the average reported probability that an applicant will be rejected for car financing was 29.4% in the second quarter.

Rising auto delinquencies reflect the growing financial burden facing Americans as they struggle to prioritize essential living expenses.

Auto delinquencies are the tip of the financial iceberg

Several studies have revealed that Americans are under increased financial stress due to higher bills and rising credit card balances.

According to a Capital One survey, 73% of Americans rank finances as their biggest source of stress.

A recent TD Bank survey revealed that 30% of consumers have reduced their spending due to concerns about personal finances. Half of respondents said grocery expenses had increased the most over the past year.

With essential living expenses consuming a growing share of personal budgets, more Americans are worried that they’re going to fall behind on their credit card payments.

According to a separate New York Fed study, the average probability that a consumer would miss their minimum credit card payment over the next three months increased to 13.6% in August. This was the highest level since the early days of Covid lockdowns.

“Perceptions about households’ current financial situations deteriorated slightly, with fewer respondents reporting being better off than a year ago and more respondents reporting being worse off,” the Fed’s report concluded.

Although inflation-adjusted household incomes rebounded in 2023, national poverty levels remained unchanged. Data from the Census Bureau shows that the national poverty rate increased slightly to 12.9% in 2023 from 12.4% the previous year.

According to NPR, lower-income households are more likely to be maxed out on their credit cards and most likely to fall behind on their payments.

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