Car repossessions have grown less common in the past two years, but those days may be over. Credit rating agency Fitch Ratings says repossession rates have nearly returned to pre-pandemic levels. Some analysts fear they could grow from there. For the lowest-credit consumers — those who make up the subprime loan market — the repossession rate is now higher than it was in 2019.
Repossessions fell for a combination of reasons. Lenders grew more lenient with late payments, confident that the pandemic was a temporary disruption. They knew they’d likely make more money by giving people time to adjust than by seizing back cars to sell at lower prices. Government stimulus programs also helped many Americans stay afloat.
But economic conditions have begun to change.
High monthly payments meet recession warnings
Skyrocketing car prices have left consumers with more debt for the same cars. According to the Consumer Financial Protection Bureau, loans that started in 2021 and 2022 have proven particularly hard to afford.
Loans taken out in those years performed worse than earlier loans “because those consumers had to finance cars once the supply chains were jammed and the prices started to go up,” says Ryan Kelly, acting auto finance program manager for the bureau. The average monthly payment for a new car bought last month is now a shocking $762.
“Those consumers got hit with inflation twice,” Kelly says. “First, when they had to finance a car after the prices went up, and then when they had to put gas in the car after the Russia-Ukraine conflict started.”
The CFPB this year warned lenders not to repossess cars before the law allows it.
Repossession firms seeing new business
Jeremy Cross, the president of repossession firm International Recovery Systems, calls the last two years “a recipe for disaster.”
He explains, “Over the last two years, vehicle prices were inflated because there was no new car supply.” But Americans had saved money staying at home under lockdown, and some spent it on more expensive cars.
Now that the economy may face a downturn, those payments are proving harder to make.
Now “the volume is picking up, and the remaining companies that are still performing repossessions are very busy,” Cross says. He thinks lenders are preparing for a new wave of repossessions in 2023 and 2024 because they’re beginning to offer his company new incentives “jockeying for position,” knowing that repossession firms will have more business than they can handle.
Cox Automotive analysts predict that long-term through 2025, repossessions will remain at or below historical norms. But between now and then, we could see a peak. (Cox Automotive is the parent company of Kelley Blue Book.)
This story originally ran on KBB.com.