Core Insights - The current state of auto loan delinquencies indicates significant stress among lower and middle-income households, raising concerns about potential defaults in the sector [1][6][22] Group 1: Auto Loan Market Overview - The U.S. auto loan market has reached a record $1.66 trillion in debt, which has doubled over the past 12 years, with a significant portion sold as asset-backed securities (ABS) [4][23] - Recent collapses of subprime auto lenders, such as Tricolor and First Brands, have triggered warnings about the health of the $3 trillion private credit market [3][22] - The share of subprime auto loans with borrowers missing payments for 60 days or more reached 6.43% in August, the highest level since 1993, indicating a troubling trend in consumer credit [5][6] Group 2: Consumer Financial Strain - The average price of a new car has surged by 35% since 2019, surpassing $50,000, leading to higher monthly payments that consumers are struggling to meet [8] - The number of clients seeking help from American Consumer Credit Counseling (ACCC) has increased significantly, with average debt loads rising by nearly 60% over five years [9][11] - Delinquency rates for credit cards and student loans have also climbed, reflecting broader consumer financial distress [12] Group 3: Risk Factors and Future Outlook - The performance of subprime auto ABS is expected to deteriorate further into 2026, with continued increases in delinquencies and defaults anticipated [22] - Concerns have been raised about the lending practices towards potentially undocumented borrowers, which could exacerbate default risks [20][21] - The overall stress in the auto loan sector may not pose an immediate threat to financial stability but signals significant consumer strain, especially if unemployment rises [24]