Vehicle Demand High Despite Bigger Payments, NY Fed Says

Borrowers generally are taking in stride bigger auto loans and higher monthly payments brought on by the scarcity of new and used vehicles, but researchers for the New York Federal Reserve are keeping an eye on a slight, recent uptick in delinquencies among 18- to 29-year-olds.

In its report, the New York Fed reports auto originations nationwide in the fourth quarter were worth a record $180.5 billion, an increase of 11.7% vs. a year ago, even though unit volume was roughly flat. That’s for new and used, loan and lease combined.

“Households are in very good shape. Savings have gone up, people are in a pretty good position,” says one of the authors of the New York Fed’s Quarterly Report on Household Debt and Credit for fourth-quarter 2021, published Feb. 8.

However, “some people went through the pandemic pretty well, and some have done not so well,” the Fed researcher says in an online press briefing. In keeping with its policy, the New York Fed asks that its researchers not be quoted by name.

Borrowers between ages 18-29 saw an increase in the fourth quarter vs. the third quarter in the percentage of auto loan and lease accounts that transitioned into serious delinquency, defined as 90 days or more overdue: to 2.98%, from 2.71%. the Fed says.

However, even for that age group, the percent transitioning into serious delinquency was below the year-ago level for Q4. For all age groups combined, the transition into serious delinquency was down slightly vs. Q3 and down vs. Q4 a year ago, according to Fed data.

“We’re keeping a close eye on the performance of auto loans going forward,” a Fed researcher says.

There’s cause for concern because vehicle scarcity brought on by the computer chip shortage is driving up average loan and lease balances outstanding, as well as monthly payments, the Fed says. The average auto monthly payment is up 8% vs. a year ago, to $418, for new and used combined, the report says.

Logically, consumers eventually will reach a point where auto loans and leases become so unaffordable that demand will subside, but that point hasn’t been reached yet, the Fed says.

“We expect the price of new and used cars can’t rise relative to income forever. One has to expect there will be a reduction in demand at some point,” a Fed researcher says. “On the other hand, people depend on cars to get around and for the ability to get to work. That’s not an easy thing to substitute out of.”