A rise in auto loan delinquencies, or late payments, may be the next signal that the U.S. economy is headed towards a potential recession, according to a new warning from Ford Credit, the automaker’s financing arm.
“We are seeing delinquencies start to increase,” Ford Chief Financial Officer John Lawler told the Deutsche Bank 2022 Global Automotive Conference on Wednesday. “It’s not yet a concern for us because, coming out of last year and through the first part of this year, they were very low. It seems like we’re reverting back more towards the mean.”
“We’re looking for every indication and every data point we can to get a read on where the consumer is, where they’re headed given everything that we see out there, the inflationary pressures, the economic issues, et cetera,” he continued. “So we are seeing some headwinds there a little bit when it comes to delinquencies as maybe a leading indicator.”
Automotive research firm Edmunds reported that consumers’ average monthly car loan payment hit a record of $656 for new vehicles and $546 for used vehicles in May. The average annual percentage rate for new vehicles hit 5.1%, the highest level seen since March 2020, and the average loan term for a used vehicle hit a record of 70.8 months.
Those borrowing costs are expected to climb even higher as the Federal Reserve is raising interest rates to tame scorching-hot inflation.
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