Auto loan delinquency in the U.S. has hit an almost unprecedented high, according to numbers released by the loan industry yesterday.  NPR explains, "Auto loan delinquency in the United States hit a 17-year high in the fourth quarter of 2007, according to the American Bankers Association. Some 3.13 percent of car loans were overdue 30 days or more."  Industry analysts from Edmunds.com estimate "that nearly a fourth of borrowers are 'upside down' in their car loans, meaning the car is worth less than the loan balance."  What's driving the trend?  Edmunds' Consumer Advisor Phillip Reed told NPR that "many people are buying higher-end vehicles and they're buying cars when they're younger, so as a result they're putting less down."  Consumers have been "keeping that money so that they can make car payments," and over time the cost of the average car has risen dramatically when compared to the amount of money most people actually make.

Wired comments, "it's clear that Americans have been buying more car than they can afford. And as with the housing bust, many people have been victims of predatory lending."  In fact, "real wage growth in America has been stagnant for nearly a decade, while the price of automobiles continues to climb, especially in the ways that you can add many thousands of dollars in options to your typical ride. The lending arms of car manufacturers are struggling to get people into new cars by extending the terms of the loan. The average today is nearly 64 months."

Automakers have been feeding the trend, offering longer loan terms.  We've reported this year on auto loans with terms as long as 96 months. 

Connecticut's Hartford Courant notes, "Some SUV owners might feel like subprime borrowers because they are subprime auto loan holders.  In 2006, automobile dealers issued nearly $50 billion in subprime new-vehicle loans, according to the most recent information provided by J.D. Power and Associates, a global marketing information firm."  James Quiggle, a spokesman for the Coalition Against Insurance Fraud told the Courant, "When General Motors was offering zero percent financing a few years back, people with relatively low incomes were walking out of the showroom with cars they had no business buying."  Now, with gas prices rising toward $4 a gallon, "more borrowers are having a tough time making the monthly auto loan payments," leading to that 17-year high in defaults and repossessions.

Many of those who still can are trying to trade down.  Shoppers trading in SUVs and seeking to buyer cheaper, more fuel-efficient small cars have created a glut of SUVs on used car lots, declining in value.  The price of those popular small cars?  It's going up. 

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