Canaries in the Car Mine
Kelley Blue Book reported last month that the average price of a new vehicle in the United States has topped $50,000 for the first time ever. Assuming a $45,000 loan at an 8% interest rate with a five-year term, the monthly payment works out to just over $900 per month. CarMax recently reported that the share of U.S. auto payments exceeding $1,000 per month is now just over 19% of the market, which is essentially an all-time high.
That $50,000 average price for a new car is up roughly 35% since 2019. Cars are more expensive today for several reasons. First, the average vehicle contains far more technology and safety features these days, driving up production costs. Second, supply chain disruptions and labor shortages during the pandemic caused a price spike that has never fully receded. Finally, the simple forces of supply and demand are at play: with a low unemployment rate and a relatively stable economy, there has been a sufficient pool of active buyers willing and able to pay more, a scenario that typically pushes prices higher.
With monthly payment amounts that are that significant, there are going to be some delinquencies, right? Yes. But the story is complicated. As with many things in this economy, there are two different stories depending on where you a sit, a phenomenon economists have been increasingly describing as “the K-shaped economy,” with outcomes for people diverging in opposite directions based on one’s starting circumstances.
Delinquency Data
Overall delinquency rates on vehicle loans remain quite healthy by historical standards. Loans for well-qualified borrowers are particularly stable, with delinquencies low or practically non-existent. The story is different, however, in the sub-prime borrower pool, which are typically those with a credit score of 620 or below. Per Fitch Ratings, over 6% of these borrowers are now 60+ days past due on their auto loans, with the percentage steadily ticking up. Repossession activity is up, with 1.7 million cars taken back in 2024, with that number likely to be even higher in 2025 once full-year data is available.
In short, the delinquency data tells a story of a car loan market that is solid at the upper end, and deteriorating further down the chain.
What Does It Mean?
The word “subprime” carries heavy historical baggage for those who remember the Great Recession and the 2008 financial crisis. Back then, it referred to a wave of risky mortgages extended to borrowers with weak credit profiles. As those loans started to go bad, it triggered a global financial collapse because of the way home loans were packaged and repackaged as alternate investments. What were thought of as “safe” investments were far from it.
While today’s auto loan problems are not nearly as systemic or large in scope as the housing market crisis of 2008, they still offer important warning signs. The auto loan market is smaller and more fragmented, and vehicles themselves are depreciating assets, meaning that defaults don’t ripple through the economy in the same way as home foreclosures once did. However, that doesn’t mean the risks can be dismissed outright. If banks and other lenders end up with too many bad loans on their books, it could trigger tightening credit standards for other types of lending, which would have a freezing effect on the economy.
But the larger concern is correlation. True, houses and cars are much different “products,” and borrowers for each respond differently to any sort of financial peril they feel when making payments on each. People are more likely to prioritize their home mortgage, for example, rather than their car loan, if they find themselves in a pinch.
But economic peril correlates through different types of financial landscapes. JP Morgan Chase CEO Jamie Dimon said on a recent earnings call, “When you see one cockroach, there are probably more.” The context was a bad set of loans that JP Morgan Chase were writing off as losses (and other banks doing similarly, including several high-profile losses experienced by community banks). Dimon was pointing to the idea that visible signs of strain in one area often indicate deeper, hidden weaknesses elsewhere. Rising subprime delinquencies in the auto market could signal broader consumer stress, especially as inflation and lingering affordability pressures continue to weigh on household budgets.
This matters because consumer spending drives about two-thirds of U.S. economic activity. If more Americans are struggling to make payments on essential items like cars, that financial strain can spill over into other areas: credit card balances, rent or mortgage payments, and retail spending, to name a few.
Policymakers and lenders should be watching closely. If subprime defaults continue to rise, the risks of financial contagion similarly become elevated, not just because of perils in the vehicle lending market, but because of the implications that said peril has in other areas of the economy.
In short, while we are not witnessing a replay of 2008, there are echoes worth noting. The widening gap between financially secure and financially strained households (the essence of the K-shaped economy) is likely to remain a defining feature of the U.S. landscape in months and years ahead, and an ongoing theme that The Sunday Morning Post will continue to explore.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Weekly Round-Up
Surprise! After several months of not putting together a weekly round-up, I am back with one this week. To be honest, two things have contributed to not including this feature in recent months. First, I am trying to spend less time online. That has generally been a positive thing, but the lack of scrolling through the news and various social media sites has meant I am flagging fewer links and interesting stories to share here. Secondly, life is just really busy. It may not seem like a lot of extra work to organize and format a few extra thoughts here at the bottom of each article, but it does end up being a little bit more than I’ve been able to assemble. On the one hand, I don’t really mind doing it, but on the other, I just haven’t had the raw time to do it with many other commitments and responsibilities.
One of those responsibilities (and joys!) has been coaching my son’s U12 travel soccer team this fall. On the very day this article is being originally published (November 2, 2025), our team will be playing in the Soccer Maine state championship game. We have successfully navigated a successful regular season and three victorious playoff games against tough opponents to reach the championship. By the time many of you read this, we may either be state champions or state runners up. Either way, it has been a successful season with much growth and emotional and physical development alike.
Now, into the round-up!
Here are a few things that caught my eye this week:
During one of the World Series games this past week, the TV announcer said that Dodgers superstar Shohei Ohtani gets 10-12 hours of sleep a night and takes a two-hour nap before each game. The story gets more interesting — including that Ohtani carries a specific mattress around the country with him, made by a nearly 500-year-old Japanese bedding company. This article is over two years old, but you can read more via Japan Forward here. I love watching Shohei Ohtani. He is my favorite modern baseball player to watch and cheer for, and I think he will probably go down as the greatest player of all time (yes, better than Babe Ruth!).
Amazon announced this week that it will be laying off 14,000 employees. Speculation abounds about the role of AI and what announcements like this signal for the future of the American (and, indeed, international) workforce. CEO Andy Jassey says it’s not about saving money or AI, but because they had grown too bloated as a company with headcount, and it was leading to lack of efficiency. Read more here.
Walmart is also talking about its headcount. Walmart CEO Doug McMillon said at a September event, AI is going “to change literally every job.” Google (through its YouTube division), JP Morgan Chase, and Goldman Sachs have all recently announced buyouts or that they are slowing hiring, per MSN. Talk about canaries…
Have a great weekend, everybody.