As the coronavirus was spreading from China to Europe and eventually to the U.S., Americans borrowed a record amount of money to pay for new and used cars, according to a new report.
Experian, which tracks millions of auto loans, said U.S. consumers agreed to record monthly auto loan payments in the first quarter, when vehicle sales were surging before a dramatic slowdown in the second half of March.
"What I've noticed that seemed to change is leasing has come down. It dropped more significantly in April. So more loans (to buy) and less leasing," said Melinda Zabritski, senior director of automotive financial solutions at Experian. Leasing, which typically comes with a lower monthly payment, likely became less appealing because many consumers opted for an even lower monthly payment with a used vehicle, she said.
In addition, in March and April, automakers started offering lucrative incentives to buy a new vehicle, which attracted more customers.
Before the coronavirus pandemic slammed the brakes on the economy, those buying new vehicles in the first quarter agreed to an average monthly loan payment of $569 — an all-time high — with the average amount borrowed hitting a record high of $33,739. The numbers for used vehicle prices also climbed to all-time highs, with the average monthly payment hitting $397, and the average amount for an auto loan rising to $20,723.
The larger loans and the higher monthly payments reflect a market where new vehicle prices have increased, especially for pickups and SUVs, which sell at higher price points.
"Consumers have become comfortable with it," said Zabritski. "If they weren't, we would see consumers go back to smaller, less expensive vehicles."
New vehicle prices have steadily risen over the last decade, in large part because the economy was expanding, jobs were being created and consumer confidence rarely dipped. It's been a far different story in the last two months. Unemployment has skyrocketed to 13.3%, with millions losing their jobs since the Covid-19 pandemic hit in March as the country slid into a recession.
In 2008 and 2009, during the last recession, the number of delinquent auto loans soared as consumers failed to make their monthly car payments. Although it is unclear whether that will happen again, Wells Fargo has stopped making auto loans to most independent dealers in the country because it is worried about loan defaults. The move follows Wells Fargo's retrenchment from parts of the mortgage market as the coronavirus pandemic took hold in the U.S.