New vehicle affordability touched a yearly low for the month of December, according to Cox Automotive.
The new research indicates that auto loan rates surged to a 20-year high in the final month of 2022 as new-vehicle prices also increased to a record average of $49,507. The firm notes that the median consumer needs to spend over 80% of their yearly wages to purchase a new auto.
The data provider also noted that used auto prices tracked by Manheim Used Vehicle Value Index rose 1.5% from the close of 2022 to mid-January. Despite breaking a streak of steady declines for the index, used car prices remain well below peak levels touched in early 2022.
As affordability declined, loan performance continued to deteriorate, according to Cox.
The latest data indicates that loans delinquent by more than 60 days jumped 26.7% from the prior year. Severely delinquent loans rose sequentially by 0.1% to 1.84% in December. Cox noted that this is the highest rate for that metric since the depths of the Great Recession in early 2009. The subprime severe delinquency rate rose 1.63% from 2021 to 7.11%, the highest since 2006.
To be sure, Cox Automotive Chief Economist Jonathan Smoke noted that “January is always a very light month for sales transactions” and, as such, the data should be taken with a grain of salt. Additionally, he noted that loan delinquencies have not cascaded into defaults as of yet. According to the data, the annualized auto loan default rate in December- was about 40 basis points below the comparable period in 2019.
Nonetheless, Smoke believes higher interest rates are indisputably helping to create an affordability problem in the auto space.
Elsewhere, the firm’s 2022 Car Buyer Journey Study reflected growing frustration among increasingly stretched car buyers. Per the survey, 61% of consumers were satisfied with their purchase experience, down sharply from 72% of respondents in 2020 and 66% in 2021.
“Vehicle buyers were frustrated with high prices, limited availability, and the amount of time required to complete the process,” the research explained. “Used-vehicle buyers, who are often more price sensitive and face higher interest rates, were particularly unsatisfied with the experience in 2022.”
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