(Bloomberg) -- More Americans than ever are at least three months behind on their auto loans, a sign that the U.S. economy may have little growth left in the tank.
The number of loans at least 90 days late exceeded 7 million at the end of last year, the highest total in the two decades the Federal Reserve Bank of New York has kept track. Expressed as a percentage of total debt, the delinquency rate is the highest since 2012, as overall borrowing has also increased.
The data show not all Americans are benefiting from the strong labor market, New York Fed economists say. Consumers with the weakest credit have driven deteriorating performance of auto debt: The share of subprime borrowers who fell well behind on car payments the last three months of the year was the highest since the second quarter of 2010.
“Disappointing dynamics in sales and delinquencies in the auto sector could be a foretelling sign,” said Yelena Shulyatyeva, senior U.S. economist at Bloomberg Economics. “Recent developments confirm our estimates that the U.S. economy has entered the late stages of the business cycle even though the recession odds remain low” and the cycle’s end isn’t yet in sight.”
Delinquencies are on the rise even as auto lenders have shifted business to more creditworthy borrowers. Total car loan originations climbed to a record $584 billion last year.
“Despite auto debt’s increasing quality, its performance has been slowly worsening,” Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, said in a statement. “Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans.”
The deterioration in subprime auto loans comes as vehicle prices have soared and financing rates have crept higher, making it harder to afford a new car. Consumers paid an average of more than $36,000 for a new vehicle last year, up roughly 3 percent, according to Kelly Blue Book.