Last week Cox Automotive Global EV Strategist John Ellis gave his weekly market breakdown before All Things Used Cars with David Long. He touched on auto loan defaults being up, but so far, not producing unexpected repossession numbers. His optimistic take on the data seems to contrast some media discussing the same stats. We are all aware recession talk sells, so let's look at the data and see if our unyielding faith in John Ellis is merited.
Are auto loan defaults climbing? Compared to 2021's 1.98%, 2022's default rate of 2.27% seems aggressive, but compared to 2019's 2.9%, defaults are still sitting in a healthy spot.
Can we assume defaults will become repossessions? As recent as 2020, 80% of defaults led to repossessions. However, in 2021 that number dropped below 78%. A promising direction in a time of financial uncertainty in many American households.
Inflation and interest rates don’t tell the story. A worthy indicator of repossessions increasing is unemployment and household earnings, not inflation or interest rates. Currently, default and unemployment rates are historically low, while household income increases yearly.
Defaults are likely to increase through the end of the year. However, with average household savings still in a healthy position, repossessions are not likely to suddenly, or even slowly, erupt based on people falling a month or two behind. So while there are ways to slice the data to produce excellent doom scrolling, auto buyers and sellers should not be distracted by an uncertain moment.