Auto Debt Reaches $1.71 Trillion on Sticker Price, Not Looser Terms

Auto loan and lease balances outstanding for new and used vehicles reached $1.71 trillion in Q2, up $28 billion from Q1 and $58 billion, or 3.5%, year over year, according to the New York Fed's consumer credit report based on Equifax data ^[1]. The terms did not loosen to get there: the average new-vehicle loan length ticked up to 66.5 months, a level first reached a decade ago in 2016 and shorter than the pandemic peaks ^[2], and vehicle unit sales have remained below pre-pandemic levels ^[3].

That leaves price doing the work. The average amount financed on a new-vehicle loan rose to a record $42,500 ^[4], against $24,900 for used vehicles in Q1 per Federal Reserve Board data, still below the peak set at the end of the pandemic's 50% used-price spike ^[5]. The new-used gap is $17,600, meaning the average new-vehicle borrower finances about 1.7 times what the average used-vehicle borrower does ^[6]. Spread $42,500 over 66.5 months and the principal alone runs about $639 a month before any interest ^[7]. Wolf Richter attributes the drift upmarket to legacy automakers killing off most of their sedan models before the pandemic and concentrating on vehicles like $100,000 luxury crew cab pickups, which Americans are buying ^[8].

The credit mix does not look like 2007. A near record 54.6% of auto loans and leases went to borrowers with credit scores of 720 or higher, off the 56.1% record set last year ^[9], and the subprime share was 15.6% after hitting record lows last year ^[10]. Richter notes that subprime describes a payment history, not an income level, and that subprime auto lending is a specialized business in which loans are securitized and sold as asset-backed securities, with high rates, high default rates, and periodic implosions of the dealer-lenders that run it ^[11].

Aggregate burden is also unremarkable. The ratio of auto loans to disposable income ticked up a hair to 7.25% in Q2, in the middle of the range of the past two decades ^[12], because disposable income has grown roughly as fast as auto debt as household counts and per-household income rose ^[13]. The 60-plus-day delinquency rate for all auto loans and leases edged up to 1.42% in June but was down 2 basis points year over year, according to Equifax ^[14]. Richter cautions that the monthly Equifax series only starts in 2020, the free-money era when delinquency rates fell to ultra-low levels, so comparisons to that base flatter nothing ^[15].

The pressure point, then, is the payment on a single new unit, not the system's leverage. One number worth flagging: the $28 billion quarterly increase annualizes to roughly $112 billion, about 1.9 times the $58 billion added over the trailing year, so the growth rate picked up in Q2 ^[16].

Watch whether the 720-plus share keeps sliding from last year's 56.1% record while balances grow at the Q2 pace ^[9][1], which would mean the marginal borrower is getting weaker rather than the pool getting bigger. Watch whether average new-loan length moves past 66.5 months ^[2], the obvious valve if $42,500 tickets keep rising ^[4]. And watch the 7.25% debt-to-income ratio ^[12]: it has stayed mid-range because income kept up ^[13], and that is the assumption the whole picture rests on.