Getting a car loan is getting harder, data from the Federal Reserve shows, in a sign that a bad year for auto investors is likely to get worse as demand weakens.
On Monday, the Federal Reserve Bank of New York released data on consumer access to credit, showing that the rejection rate for all applicants fell to 17.3% in February from 18, 8% in October. The problem is that the auto loan rejection rate rose to 9.1%, the highest since February 2017, up from 5.8% in October.
Auto loan delinquency rates are also on the rise. Ally Financial (ticker: ALLY), ended 2022 with 3.6% of auto loans 30 days or more past due, compared with 2.1% at the end of 2021.
The stress on consumers is showing up in new car values. In February, the average price of a new vehicle in the US was $48,763, down $705 from January. It is the third monthly drop in new car prices.
Most car companies expected new car prices to fall from record levels in 2023 as interest rates rise. More than 15% of consumers who financed a vehicle in the fourth quarter of 2022 are paying more than $1,000 per month on their car loan. That’s the highest the percentage has ever been, according to data provider Edmunds.
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Meanwhile, used car values are holding up. In March, Manheim’s used vehicle value index rose nearly 2% from February, the third consecutive monthly increase.
Used car supplies seem to be behind this. When the pandemic hit in March 2020, relatively few cars were made or sold, so there aren’t many three-year-old vehicles hitting the used car market today.
The value index for used vehicles is down about 5% year-over-year and about 7% from its all-time highs. But used car values are still more than 50% above pre-pandemic levels.
The result of all this will likely be more uncertainty and volatility for automakers. Some of that is already reflected in auto stocks: Ford Motor ( F ) shares are off about 31% from their 52-week high, while General Motors
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(GM) is down about 25%.
Analysts are increasingly bearish. Earnings estimates for 2023 have fallen about 13%, on average, over the past three months. And the average buy-to-buy ratio of all car-related stocks in the
Russell 3000
is down to about 50% from 54% in early 2022.
The 35 auto stocks in this index are down about 40% from their 52-week highs on average.
It may be difficult for automakers to do better until credit metrics improve. The stock market, however, is always forward-looking, so auto stocks should bottom out before then.
The Fed’s survey deals with data from February, rather than focusing on what happens after that, so it doesn’t affect car inventories on Tuesday. Shares of Ford and GM were up about 5% in midday trading. The
S&P 500
i
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Dow Jones Industrial Average
gained 0.7% and 0.6%, respectively.
Auto stocks are trading a bit like bank stocks these days. Cars are credit-based purchases, so the health of the banking sector is important. First Republic Bank (FRC), the current focus of concern over the health of lenders, jumped 41% in midday trade after losing 90% of its value in March. The
SPDR S&P Regional Banking ETF
(KRE) is up nearly 6%.
Write to Al Root at allen.root@dowjones.com
