Do Recent Auto Loan Delinquency Rates Overstate Borrower Distress

After considering several possible explanations, we focus on deconstructing the severe delinquency rate - the number of auto loans that are 60 or more days delinquent - to better understand what is driving the increase in this rate. We find that while the stock of severe auto delinquencies is rising, the flow of new delinquencies into this stage is fairly stable. A possible explanation for the difference between these two trends may be that account management (e.g., forbearance practices) for distressed auto loans has evolved. An open question is whether further adjustments will be made to these practices if the U.S. market experiences a deterioration in the macroeconomic environment.