Poor-credit consumers are constrained the most by the current auto market
Auto loan borrowers with credit scores between 501 and 600, known as “subprime” consumers by auto-finance insights companies, are being squeezed the most by record-high monthly payments and heightened competition in the used-car market.
As supply chain disruptions stall the production of new cars globally, used-car inventory is getting more expensive.
In Florida, borrowers are financing an average of $37,778 for a new vehicle and $28,329 for a used vehicle in Q3 2022, according to data requested from TransUnion.
Melinda Zabritski, the senior director of automotive financial solutions at Experian, said the upward pressure on used-car costs is caused, in part, by an overflow of demand from the new-car market. In 2022, Auto Forecast Solutions estimates that supply chain issues accounted for around 1 million fewer vehicles produced in North America.
Zabritski said shrinking new-car inventory has forced more drivers into the used-car market, heightening demand and ballooning prices.
“If you are a consumer who has not bought a new or a used car in the last several years, it could be a bit of a sticker shock,” Zabritski said.
In Florida, auto loan borrowers assumed longer-term loans, higher interest rates and larger monthly car payments to finance used cars in Q3 2022, according to year-over-year data requested from Experian.
Zabritski said auto loan borrowers with credit scores between 501 and 600, known as “subprime” consumers by auto-finance insights companies, are being squeezed the most by current market factors. Oftentimes, poor-credit consumers have fewer financing options and are more vulnerable to defaulting on auto loans.
She added that the heightened demand in the used-car market may price out lower-income consumers or drive them to purchase much older vehicles. As reported by NPR, car maintenance and repairs are also getting less affordable due to supply chain disruptions and rising labor costs.
Used-car salesman A.J. Stathas has watched these national auto-market trends trickle down into his family’s dealership on Fletcher Avenue.
With a shortage of new cars in the market due to continued supply chain disruptions, Stathas said his family’s dealership has experienced a spike in business for used cars. Typically, the lot has around 100 cars. But in recent months, there’s been closer to around 45 vehicles.
In particular, inventory has been dominated by SUVs and trucks on the lot. A few years ago, small economy cars were more prevalent.
In recent years, 60% of new-car shoppers purchased SUVs — a pricier vehicle option — over sedans, contributing to an overall costlier used-car market, according to Zabritski.
“Now, the flip-side to that is … if you happen to have a used car that you’ve had for several years, and you’ve been paying it down, chances are you’ve got considerable equity in that vehicle,” Zabritskisaid.
In the last six months, Stathas said the used-car market is so strong that some drivers have successfully sold their vehicles and walked away with a profit. For example, Stathas said in a recent sale sold his F250 with around 60,000 miles to the dealership and walked away with more than he originally paid.
As inflation drives up the cost of everyday goods, Stathas said he’s also noticed a growing debt-to-income ratio among customers in the community.
In Florida, the 60-day delinquency rate for auto loan borrowers jumped to 1.35% in the third quarter, exceeding pre-pandemic levels. It also surpassed the national delinquency rate of .81%, according to data from TransUnion.
Zabritski forecasts this rate is likely to keep climbing amid growing economic pressures at the household level. She said borrowers who stay upside-down on their auto loans will eventually have to surrender their vehicles or face repossession.
Gabriella Paul covers the stories of people living paycheck to paycheck in the greater Tampa Bay region for WUSF. She's also a Report for America corps member. Here’s how you can share your story with her.