Car repossessions are on the rise in Australia, in a sign of growing financial distress that can have traumatic consequences on families, including robbing people of work opportunities.
Automotive auction house Pickles describes a recent increase in the supply of repossessed vehicles as “significant”, with numbers up 13% in the last six months and 11% over the last quarter.
Pickles attributes the increase to cost-of-living pressures and falling used car prices, which have hampered the ability of vehicle owners to refinance their rapidly depreciating assets.
Car debt data from the banking sector also shows Australians are falling behind on their car repayments, with 90-day arrears figures now around double the rate two years ago, according to the latest financial results. of Westpac.
Serious delinquencies are a precursor to repossession.
Peter Esho, an economist who runs Sydney-based Esho Capital, said car arrears were a “very important discretionary indicator” of the financial pain households were experiencing.
“People tend to delay the car payment or miss the car payment before the house payment,” Esho said.
“The home mortgage is now absorbing a larger component of spending and everything else is suffering.
“With a car loan, they’re fixed loan periods and there’s generally very little room to refinance.”
Australians have faced years of rising living costs and lending rates, which have led to a huge increase in the number of businesses collapsing and people falling behind on payments.
The prolonged period of high mortgages and rents is pushing more people into financial stress, leaving less capacity to pay off other types of debt, such as car loans.
Car owners have also endured steep double-digit increases in insurance costs, as well as high gas prices.
While some families may sacrifice their car loan to meet high mortgage rates or rental costs, car loans are still seen as a priority as many people rely on vehicles for work.
Social services provider UnitingCare describes car repossessing as a “traumatic experience with lasting consequences”.
If selling a repossessed car doesn’t pay off the debt in full, the borrower will still be responsible for any outstanding amounts, as well as affecting their credit rating.
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The Australian car market has experienced a volatile period marked by pandemic supply constraints that have led to long waits for popular models, which have also kept used car prices high.
With the easing of supply constraints, used car prices have fallen quickly, ending the boom in used vehicle prices. This is good news for buyers, but bad news for those with auto loans.
Ratings agency Fitch notes that while auto payment arrears are still below pre-pandemic levels, the pace of delinquency growth is accelerating, with arrears “likely to remain high due to continued pressures from inflation and growth of stagnant real wages”.
This roughly mirrors home repossession data, however mortgage lenders typically allow customers more flexibility, which includes loan deferrals, which can help mask the true extent of financial distress in the economy.
Fraser Ronald, chief commercial officer at Pickles, said “people will go to a lower price point and what that means in terms of used cars is a smaller car because they are cheaper.” .
He said passenger cars, including sedans and hatchbacks, are in demand, which is masked by the strong appetite for SUVs that has been evident in recent years.
James Voortman, chief executive at the Australian Motor Dealers Association, said consumers were turning to cheaper vehicles due to rising living costs, with competitively priced Chinese brands including LDV, Great Wall Motor, MG and Haval significantly increasing market share in recent years.
He said strong pandemic demand for new vehicles was clearly easing.
“We’re hearing from dealers that this cost-of-living crisis is starting to bite, and they’re seeing a lot fewer people in the showrooms,” Voortman said.