On a chill October night in Virginia, a Wall Street Journal reporter rode shotgun with a repo crew as they scanned license plates and hauled away cars. The agents said they were busier than ever, as repossessions climbed back to Great Recession levels\u2014an estimated 1.73 million vehicles seized last year, the most since 2009.<\/p>\n
So much for the repo crews. Their story is reflected in more recent data. The New York Fed\u2019s credit survey shows households now expect their auto-loan applications to be rejected at a record rate, and the overall rejection rate for any kind of credit over the past year has risen to another record high of 24.8 percent, with discouraged borrowers up to 8.0 percent. Translation: people think they\u2019ll be turned down\u2014and many of them actually are.<\/p>\n
The picture is the same wherever you look. The share of subprime borrowers at least 60 days behind on their car loans hit 6.65 percent, the highest on record in Fitch\u2019s data going back to the early 1990s.<\/p>\n
As Washington turned the government back on after a 43-day shutdown, and continues to fight over SNAP benefits for millions, the repo trucks never stopped. That might be alarming for a president who campaigned on a better economy<\/a>.<\/p>\n Common Knowledge<\/strong><\/p>\n The warnings are simple: the auto-loan spike is household stress with headlights on. \u201cAuto finance is at a breaking point,\u201d warned the Consumer Federation of America in a new report arguing for tighter oversight. \u201cDelinquencies, defaults, and repossessions have shot up.\u201d This, progressives say, is what you get when prices surge and credit stays expensive for the people who can least afford it.<\/p>\n Economists sympathetic to that view add a practical point: cars aren\u2019t optional. \u201cHaving a car is essential to being able to work,\u201d said Columbia Business School\u2019s Brett House. \u201cWhen we see stress in the auto financing market, we typically receive that as an indication that household finances are getting tighter.\u201d <\/p>\n Progressives also connect today\u2019s pain to policy. When President Donald Trump slapped a 25 percent tariff on imported autos in March, he brushed off price worries\u2014\u201ccouldn\u2019t care less if auto prices rise,\u201d he said\u2014on the theory that costlier imports nudge buyers to U.S.-made cars. To the left, that was a candid confession that consumers would pay more.<\/p>\n The right counters with two arguments. First, that risk-based pricing is doing exactly what it should: subprime delinquencies are up, but prime credit is steady, which means lenders are sorting risk\u2014not failing the economy. The Journal\u2019s editorial page has hammered the point that serious delinquencies have climbed, but warns against \u201cprice-control\u201d fixes that would choke off credit to marginal borrowers.<\/p>\n Second, that progressive cures\u2014starting with interest-rate caps\u2014would hurt the people they aim to help. When politicians on both left and right floated a 10 percent cap (first on credit cards, now flirted with for other consumer credit), libertarian and market conservatives called it a surefire way to debank riskier households. \u201cSanders and Hawley have it wrong on rate caps,\u201d wrote the Cato Institute\u2014credit doesn\u2019t get cheaper if you make it illegal.<\/p>\n Uncommon Knowledge<\/strong><\/p>\n What makes the current moment unusual isn\u2019t just that auto-loan trouble is back. It\u2019s how it\u2019s back\u2014and what that reveals about a \u201ctwo-track\u201d Trump economy.<\/p>\n Start with the datap: 6.65 percent of subprime borrowers were 60+ days delinquent in October, a record in three decades of Fitch data. Yet delinquencies among prime borrowers were just 0.37 percent. It says the typical American who can qualify for low-rate financing is fine, while the household that uses subprime lenders\u2014often for a used car at a used-car price\u2014has no margin for error<\/a>.<\/p>\n Credit access tells the same tale. In February, Americans put the perceived odds of an auto-loan rejection at 33.5 percent, the highest since the series began. By October, expectations eased a bit, but the actual overall rejection rate across credit types ticked up to a record 24.8 percent, and the share of discouraged borrowers\u2014people who needed credit but didn\u2019t apply because they feared being turned down\u2014rose to 8.0 percent.<\/p>\n The debt stock tells the same story. U.S. households now owe about $1.66 trillion on auto loans, nearly unchanged this quarter but up over the past year, according to the New York Fed\u2019s Q3 release. Credit-card balances hit $1.23 trillion and serious delinquencies are rising across categories.<\/p>\n Prices are the third piece. Even before tariffs, monthly payments ballooned: nearly one in five new-car loans now comes with a $1,000-plus bill, Edmunds reported this summer\u2014an affordability issue that tariffs, insurance spikes and higher rates only exacerbate. (Used-car financing costs remain punishing.) When a payment hits four figures, a single shock\u2014lost hours, a missed benefit deposit\u2014can flip a household from current to delinquent.<\/p>\n Policy has sharpened the edge. The White House\u2019s 25 percent auto-import tariff\u2014defended explicitly despite higher prices\u2014has added friction to a market already squeezed by pandemic-era supply dynamics. If you\u2019re a Detroit booster, that\u2019s industrial strategy; if you\u2019re a family shopping for a Corolla, it\u2019s a tax. And when that pressure collided with the 43-day shutdown\u2014which paused SNAP for millions before benefits were restored\u2014some households faced a double bind: food money late, car payment due.<\/p>\n In January, the Consumer Financial Protection Bureau published a granular look at repossessions. The language is dry but damning: \u201cAuto repossession is a key indicator of the health of the auto finance market and is an area of potentially significant consumer risk,\u201d and the use of third-party \u201cforwarders\u201d to manage repossessions has surged, raising costs that lenders can pass to consumers.<\/p>\n A headline-grabbing consumer idea to address the credit issue overall was a 10 percent cap\u2014but on credit-card APRs, not auto loans. That proposal won cheers from some progressives and populist conservatives, and scorn from free-market economists who warn that capping prices tends to cap access.<\/p>\n So what does the auto-loan spike really say about the Trump economy? Not that it\u2019s collapsing\u2014prime borrowers and headline spending still look sturdy\u2014but that it\u2019s tightening from the bottom up. The marginal household is paying more for the same used sedan, often at a higher rate, with thinner savings and fewer second chances.<\/p>\n Politically, both sides have a point. The right is correct that you can\u2019t legislate away risk; cap rates too low, and lenders retreat. The left is right that today\u2019s squeeze isn\u2019t a morality tale; it\u2019s a problem with payments being too big for paychecks that haven\u2019t kept up\u2014and policy choices that make the car dearer.<\/p>\n