Used vehicle prices are finally starting to normalize after skyrocketing in 2021, but that does nothing for existing borrowers who are showing signs of being in trouble. The number of borrowers who are at least 60 days late on making their car payment has gone up 26.7% from a year ago, according to Cox Automotive research. Of all loans, 1.84% are severely delinquent, the highest rate since February 2009. The subprime space is even worse.

“Subprime is definitely having some trouble out there making those monthly payments on their car loans,” Cox Automotive Senior Economist Charlie Chesbrough told Straight Arrow News.

Subprime loans are those given to people with below-average credit scores. The borrower usually pays a much higher interest rate than someone with good or excellent credit. The housing market crash of 2007-2010 was driven by a subprime mortgage crisis, where an increasing amount of borrowers couldn’t afford to keep paying their mortgages.

In December, 7.11% of subprime auto loans were severely delinquent, the highest rate since Cox Automotive started tracking the data set in 2006. Chesbrough said a large portion of those will likely turn into defaults, which will trigger repossessions.

“I certainly think it’s disconcerting, it’s something to keep an eye on,” he said. “But we certainly don’t see it turning into a full blown financial crisis again, in large part because the share of the market that is the subprime borrowers is much, much smaller today. It’s half of what it was before in the last time we went through a major downturn in the economy.”

Chesbrough said repossessed cars will show up at auction sites around the country, which dealers will likely snap up at much lower prices, saying there’s room to expand supply in the used market. But as economists like him track the market, he said they’re closely watching the unemployment rate for signs of more serious trouble ahead.

“That’s where we start to really get worried about people’s ability to really afford these vehicles,” he said. “We have a lot of headwinds that we’re dealing with this year in the vehicle market. Certainly rising interest rates is probably the major known headwind. But whether we slip into a recession and we see unemployment rates rise again, that’s one of the biggest question marks that we’re dealing with this year.”

Paying for a car is no small dent in the budget, either. The average monthly payment for a new car hit a record $777 in December, according to Cox Automotive.