In a recent
report, we outlined how the largest subprime auto lender, Santander, is
currently experiencing one of the most significant accelerations in subprime
auto loan delinquencies, not seen since the dark days of 2008. Now, in a
separate report via the Federal Reserve Bank of Dallas, there is new
evidence that the epicenter of the next auto loan meltdown could start in
Texas.
The Texas auto subprime market
began experiencing a troughing event in serious auto delinquencies in 2015,
with a rapid turn up in 2016. By the end of 2018, the serious auto delinquency
rate was at 16.7%, approaching 2010 levels of 18.2%. Despite the "greatest
economy ever," the Dallas Fed admits rising wealth inequality could be
responsible for the growing delinquencies in Texas.
"It's clear something is going on," said Emily Ryder
Perlmeter, an adviser for the Dallas Fed and one of the report's authors.
"The economy may not be working as well for everyone."
Michael Carroll, an economist
at the University of North Texas, suggests the report is a clear indication that
consumers in easy money times took on too much auto debt. Carroll also said
consumer distress in Texas could be a bellwether for the broader economy and a
warning sign that the consumer is weakening.
Perlmeter
said rising auto loan delinquencies across the country is a severe problem, but
the meltdown unfolding in Texas is much worse than any other major metropolitan
area.
The Dallas Morning News noted the average auto loan in
the state is $23,500 as of late 2018.
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