Market Data 
When Greg Cook’s car of 12 years, a 2010 Honda Fit, up and quit on him in May 2022, he knew it would land him “between a rock and a hard place.”
He couldn’t afford to go without a car: He knew he’d be out of work soon — federal funding ran out for the Covid-19 response position he held for two years — and that the job hunt would be challenging because he relocated to a smaller, more affordable (but more remote) town in Oregon after losing his steady performing arts job to the pandemic.
“When I’m filling out an application, one of the questions I’ve noticed is, ‘Do you have reliable transportation to get to and from work?’ ‘Can you commute?’” said Cook, 56.
But without consistent work, he feared he couldn’t afford a car.
Cook did the math, made a pros and cons list, and bought a new car. He locked in a low rate, but that was one of the few bright spots: Since that time, not only have the dozens of jobs applications been unfruitful; but Cook, like many other Americans, was slammed by exponentially rising prices.
His car — the monthly payment, the fast-rising insurance, fuel and maintenance costs — takes up a 30% share of his monthly budget.
Still, he can’t afford to lose it, so he’s using what odd jobs he picks up and the savings he built for a rainy day to keep current on the six-year loan.
“It’s sort of like grabbing a few pennies out of a piggy bank every few days and eventually that piggy bank weighs a little lighter,” he said. “And there seem to be more days ahead than there are pennies.”
Cars or trucks are lifelines for many Americans, but after three-plus years of painfully high inflation and now a slowing economy, they’ve become liabilities.
Delinquencies are climbing at rates not seen since the Great Recession, defaults have grown and repossessions have jumped 23% from last year, new Cox Automotive data shows.
And buying a car is no cakewalk either: Credit is increasingly harder to come by and rejection rates are spiking.
Fewer people are applying for credit and an increasing share are being rejected, according to the June credit access survey released last week by Federal Reserve Bank of New York.
The survey, which is conducted every four months, found that the credit application rate slipped to 41.2% in June from 43.4% in February and the overall rejection rate increased to 21.4% from 18.7%.
While the increase was broad-based across age groups and credit scores, the area seeing the biggest spike in rejection rates was auto loans, which shot to 18.5%, its highest on record.
The one-two punch of elevated inflation and decades-high interest rates — the latter being a Federal Reserve-induced antidote for the former — have diminished consumers’ appetites for loans on many big-ticket items.
That’s certainly been visible in the automotive industry, where loan originations were down year-over-year throughout 2023, said Jeremy Robb, senior director of economic and industry insights at Cox Automotive.
Car sales did pick up a little bit in the first quarter of this year, he said, “but not a whole lot.”
“Everyone’s been waiting and hoping to see interest rates come down,” he said. “And I think we got a little bit of a head fake early this year — we thought inflation was coming down more quickly — and people thought rates would come down, but that didn’t really happen.”
One favorable development for the car shopper has been falling prices, especially for used cars, Robb said.
Vehicle prices soared in 2021 amid fallout from the Covid-19 pandemic and its jumbling of global supply chains. In their case, the semiconductor chip shortage (a result of manufacturers reassigning capacity to consumer tech because the auto factories shuttered amid the pandemic and lower demand) led to limited production of enough cars to meet the sharp rebound in consumer demand.
Although slightly cheaper cars help the affordability equation for consumers and could stir up interest, that doesn’t necessarily mean that lenders are more willing. Instead, consumers have been presented with a higher bar, including requirements for a heftier down payment and a higher credit score, he said.
More restrictive lending typically equates to approval rates going down and rejection rates rising.
“Lenders are wary of consumer balance sheets and just the overall economy,” he said. “Most economic trends have been OK, but they’re not great … Lenders don’t want to lend to people if they’re fearful they won’t get their money back.”
Job growth has remained steady, but the unemployment rate has ticked up for three consecutive months and was at 4.1% in June, its highest since November 2021.
Through the first half of this year, car repossessions are up 23% from the first six months of 2023 and 14% from 2019 levels, according to Cox Automotive data released earlier this month.
Such a spike, while unnerving, might not appear as foreboding as it seems, Robb said.
When the pandemic hit and fiscal stimulus flowed freely in the early months to help prop up American households and the broader economy, consumers were able to stay current on their bills. And many lenders were more amenable to working with customers who fell behind.
As the economy recovered, repossessions started picking back up and returning to pre-pandemic levels.
“I don’t want to diminish the fact that repossessions are higher and default rates are higher and delinquencies on automotive loan payments are also higher,” he said. “But a lot of the trends we’re seeing have gotten back a little bit toward normal.”
Delinquencies have accelerated at a much greater pace, nearing what was seen during the Great Recession; however, defaults haven’t shown as steep a rise, Robb said.
“There are more people who clearly find a way to make the payments that they’re behind on and get current some way on their loan so that they don’t default,” he said.
