For all the talk of a soft landing in the US, there’s one corner of the economy where the hazard lights are flashing: the $1.6 trillion motor-vehicle lending market, which accounts for around a quarter of non-mortgage consumer credit. For the past three years, bad debts have been rising. As of June this year, loans 30 days or more past due were back at levels not seen since the country was recovering from the Great Recession in 2010. Among subprime borrowers, delinquency rates are now even higher than during those times. Is that a sign of deeper stress, or will it be contained?
To answer the question, we need to dig into individual lender portfolios. One of the first to highlight the risk was Credit Acceptance Corp., a specialist auto financier headquartered near Detroit. On its earnings call in July, Chief Executive Officer Ken Booth warned that loans originated in 2022 were…
