The U.S. economy under President Joe Biden has been marred by record-high inflation in the modern era, and while price pressures have receded in recent weeks, they remain much higher than when former President Donald Trump left office.
As a result, a growing number of Americans in the Biden economy are increasingly struggling to make ends meet, and that includes making car payments which have also exploded in costs, thanks to supply chain issues and sky-high interest rates.
In fact, as Fox Business reports, automobile repossessions have skyrocketed in recent months as more Americans face difficulty making their loan payments:
Car repossessions tumbled in the early days of the pandemic when the government sent millions of Americans stimulus checks. But they have progressively ticked higher as sky-high prices for used and new cars alike forced consumers to take out bigger loans.
In December, the percentage of subprime auto borrowers who were at least 60 days late on their bills climbed to 5.67% — a major increase from a seven-year low of 2.58% in April 2021, according to Fitch Ratings. It marks the steepest rate of Americans struggling to make their car payments since the 2008 financial crisis.
Due to a shortage of semiconductors, prices for new and used vehicles ballooned last year as other COVID-related supply chain disruptions kicked in as well. There were fewer cars being produced, but demand for new vehicles remained high, which, of course, drove up prices. As 2022 drew to a close, prices began to decline somewhat, but the average price for a new vehicle remains near $50,000, which is a record.
Throw high interest rates into the mix, thanks to the Federal Reserve’s rate hikes implemented to slow demand and inflation, and it’s easy to see why more Americans are struggling with auto loans.
“The average new auto loan rate jumped to 8.02% in December, up from 5.15% one year ago, according to Cox Automotive. That, combined with steeper stick prices, pushed new-vehicle affordability to the lowest level of 2022,” Fox Business noted. “For many Americans, rising interest rates and high car prices have pushed their monthly payments above $1,000.”
“In fact, the percentage of consumers paying at least $1,000 a month for their cars surged to a record in the final three months of 2022, according to data from Edmunds.com, an online resource for auto inventory and information,” the report continued. “About 16% of consumers who financed a new car in the fourth quarter have payments that are that costly, up from 10.5% one year ago.”
Should more consumers default on their loans, which seems likely at this point, that will also put a damper on the auto industry as lower demand will lead to decreased output, lower profits, and, most definitely, lay-offs.