Does the auto market pose a threat to the expansion? - Wells Fargo

"Auto loan delinquencies have climbed in recent quarters as vehicle sales are being financed with increasingly more debt," notes the Wells Fargo Research Team.

Key quotes:

"For 12 consecutive quarters the rate of delinquent auto loans has climbed and has now reached 3.9 percent in Q1. The rate of these new seriously delinquent loans is still below its recession peak of 5.3 percent, but has gradually ticked up as the economic cycle has matured (top figure). In addition, the total value of new seriously delinquent loans stands at $8.3 billion, just below the recession peak, but is up 20.2 percent from a year ago. While the rate of auto loan delinquencies remains lower than other consumer debt, auto loan delinquencies have grown at the fastest rate since 2015."

"How much of a threat is the auto loan market to households and to the broader financial system? While the auto loan market as a percent of household debt has grown from 6.4 percent in 2008 to 9.2 percent today, its still pales in comparison to the size and level of securitization of the mortgage market, the origin of the last financial crisis. (In 2008, the mortgage market was 73.3 percent of the total household debt market; today it is 67.8 percent.) A meaningful slowdown in auto sales, would likely have negative effects on GDP growth, however we do not foresee such a dramatic decline in the near future. Furthermore, the July Senior Loan Officer Opinion Survey reported a fall in auto loan demand and an increase in the percentage of banks tightening standards for auto loans so the private market does appear to be adjusting to current credit problems. As the economic recovery continues to grind along, the auto loan market is certainly worth monitoring."