Overview
Subprime auto loans that are 60+ days past due climbed to 6.65% in October, the highest level since Fitch began tracking in the early 1990s, highlighting mounting strain on credit-challenged borrowers. By contrast, prime 60+ day delinquencies held steady at 0.37%, reinforcing a widening gap in performance between lower- and higher-credit borrowers.
Key statistics
- Subprime 60+ day delinquency rate: 6.65% in October (up from 6.50% in September and 6.23% a year earlier).
- Prime 60+ day delinquency rate: 0.37%, unchanged month over month and year over year.
- Fitch data released Nov. 14; records span to the early 1990s, and October marks a new high for subprime 60+ day delinquencies.
Context and drivers
Pressure is rising on lower-income households, aligning with survey data showing a widening financial divide. In a Pew Research Center survey (May), 20% of lower-income adults reported being in “excellent” or “good” financial shape versus 47% of middle-income and 74% of upper-income adults. Additionally, 44% of lower-income respondents borrowed from friends or family in the past year (21% middle-income; 11% upper-income), and 36% struggled to pay rent or a mortgage (17% middle-income; 5% upper-income).
Potential implications
- Lenders: If elevated subprime delinquencies persist, the outlet reported they may tighten underwriting or raise borrowing costs, potentially restricting access and increasing expenses for vulnerable borrowers.
- Dealers and finance companies: Rising delinquencies could slow sales to subprime customers, increase repossessions, and create more back-end challenges (e.g., coordinating on past-due accounts), the outlet reported. Dealers may lean more on prime and near-prime buyers and adjust down payments and loan terms to sustain approvals.
- Auto ABS investors: The divergence between subprime and prime performance is a focal point for assessing risk and expected losses in securitized pools.
Counterpoints
Some industry leaders urge caution against extrapolating broader instability. Jonathan Smoke of Cox Automotive said in late October (per Kelley Blue Book) that there are no signs of a domino effect poised to disrupt the auto market or the broader economy. Stable prime delinquency rates provide a counterweight to subprime stress.
Operational considerations
- Approval frameworks could shift (score cutoffs, debt-to-income thresholds), creating more volatility for subprime applicants.
- Higher repossessions may increase recovery workloads and affect used-vehicle supply and reconditioning pipelines.
- Dealerships may revisit desking practices, trade-in valuations, and finance-and-insurance offerings to align with tighter lender expectations, potentially adding friction to the sales process.
What to watch next
- Upcoming Fitch readings to see if delinquencies stabilize seasonally or continue building.
- Underwriting changes and pricing for subprime borrowers (approvals, down payments, rate spreads).
- Repossession trends and downstream effects on inventory and margins.
- Performance divergence between subprime and prime segments and any spillovers into ABS performance.
Bottom line: The latest data show intensifying stress among subprime borrowers set against steady prime performance. Lenders and dealers face balancing risk management with access to credit as the market gauges whether October’s peak marks an inflection or a continuation of gradual pressure.
