Gen Z, millennials late on car payments as student loans loom

Customers’ struggles to pay bills can erode the future dealership business.

“The surge in delinquencies coincides, perhaps not surprisingly, with a steep drop in new auto loans, particularly among borrowers with lower credit scores,” wrote Hoenig.

The amount borrowed for vehicles in the first quarter by consumers ages 18 to 29 fell 25 percent from the fourth quarter of 2022, the largest quarter-over-quarter decline found in the Fed’s data, according to Hoenig’s analysis. Borrowing dropped 17 percent quarter over quarter among the 30 to 39 age cohort, and 18 percent among those ages 40 to 49. But he also noted that tightening by lenders could also have cut into the amount of money borrowed for vehicles.

Hoenig told Automotive News in June that younger generations’ financial issues stemmed from the COVID-19 pandemic in 2020. The initiation of stimulus payments and debt relief programs — particularly with student loans — improved consumer credit scores, he said. Consumers were able to borrow more for vehicles than would previously have been possible.

“I think younger generations, particularly Gen Z, went on a kind of car-buying binge,” Hoenig said.

From the end of the second quarter of 2020 to the end of 2022, consumers younger than 40 committed to the largest dollar amount of fresh auto debt of any 10-quarter period in the Fed’s records, Hoenig wrote in a different Jerry report.

It helped swell the amount collectively owed on vehicles by borrowers ages 18 to 29 by 31 percent between the second quarter of 2022 to the end of 2022, while outstanding auto debt among those ages 30 to 39 rose 29 percent. These were the largest balance increases during that time among any of the age groups studied by the Fed.

But the rising cost of car ownership has left younger borrowers struggling to cover car payments as well as managing other debts, he said, adding that he thinks “they overextended themselves as young people tend to do.”

Hoenig said he lacked data but agreed with the idea these delinquencies would affect which vehicles borrowers purchased down the road.

“It seems logical,” Hoenig said.

A customer who defaults will flounder and likely need to buy a lower-priced vehicle, he said.

“You may struggle to get credit at all because lenders are already tightening their standards,” he said.

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