More Americans are falling behind on car loans

Summary

Marketplace Morning Report: March 7, 2025 Episode: More Americans are Falling Behind on Car Loans

In this episode of Marketplace Morning Report, host Sabri Ben delves into pressing economic concerns affecting Americans, including the latest job statistics, the impact of tariffs on the economy, and a significant rise in car loan delinquencies. Additionally, the show highlights a unique career in the "Odd Jobs" segment, featuring a vintage race car mechanic. Below is a comprehensive summary of the episode's key discussions and insights.

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Economic Update: Employment and Tariffs

[00:26 - 04:04]

Sabri Ben opens the episode by addressing the tumultuous economic landscape of the week. The conversation begins with the release of February’s employment numbers from the Bureau of Labor Statistics, followed by an analysis of recent tariff changes affecting international trade.

Unemployment and Job Growth

• Unemployment Rate: The unemployment rate in February saw a marginal increase to 4.1%, with 151,000 jobs added to the economy.

• Expert Insight: Christopher Lowe, Chief Economist at FHN Financial in New York, provides context to these numbers:

  "4.1% unemployment rate is right in the middle of the range of the last six months. So it's not that bad. But it would have been up more if not for the fact that the labor force fell. I'd say overall lackluster employment numbers in February."
  — Christopher Lowe [01:10]

Impact of Tariffs on the Economy

• Tariff Delays and Changes: The episode discusses the recent delays and alterations in import taxes on goods from Canada, Mexico, and China.

• Economic Consequences: Lowe emphasizes that the uncertainty surrounding tariffs is already affecting business operations:

  "Hiring plans by businesses are on hold until they have some certainty of the environment they're operating in. That could take months."
  — Christopher Lowe [01:43]

  He further notes retaliatory measures from Canada, specifically mentioning a 25% tariff imposed by Ontario Electricity, which remains steadfast as long as tariff threats persist.

Rising Car Loan Delinquencies

[02:23 - 04:04]

The discussion shifts to a concerning trend in the automotive finance sector. Sabri introduces findings from Fitch Ratings, revealing that 6.5% of subprime borrowers are at least two months late on their car payments—the highest rate since 1994.

Factors Contributing to Delinquencies

• Seasonal Trends: Henry Epp from Marketplace explains that while seasonal factors typically cause delinquencies to rise in January and February, underlying economic pressures exacerbate the situation:

  "Higher inflation and interest rates could keep pressure on lower income people who are struggling to stay up to date on their car loans."
  — Henry Epp [02:48]

• Vehicle Pricing and Loan Sizes: The cost of new and used vehicles has stabilized but remains significantly higher than pre-pandemic levels. The average new vehicle now exceeds $48,000, up by approximately $11,000 since early 2020. This surge has led consumers to take on larger loans, with nearly 20% of new car buyers agreeing to monthly payments of $1,000 or more—a record high.

• Widespread Impact: The Federal Reserve Bank of New York corroborates Fitch Ratings' findings, indicating an increase in auto loan delinquencies across all income levels in 2024. Epp suggests that the widespread nature of this issue is primarily driven by elevated vehicle prices and the subsequent rise in loan amounts.

Odd Jobs: Vintage Race Car Mechanic

[05:27 - 09:24]

In the "Odd Jobs" segment, Sabri introduces Nick Palamini, a vintage race car mechanic at GMT Racing in Connecticut. Nick shares his passion for vintage racing and the meticulous work involved in preserving and preparing old race cars for competition.

Background and Career Path

• Personal Inspiration: Nick attributes his career choice to his father's racing stories and early experiences with RC car and go-kart racing.

  "I grew up listening to all sorts of racing stories from my father... When I was like eight years, he took me RC car racing and then when I was 12, we went go kart racing."
  — Nick Palamini [06:03]

• Transition to Career: After struggling to sustain his own auto restoration shop post-2008 economic downturn, Nick joined a specialty race shop focused on vintage cars. His role involves not only restoring but also ensuring these rare vehicles meet stringent racing standards.

Challenges and Rewards

• Technical Precision: Nick emphasizes the importance of building cars to standards, not just price, given the high value and safety requirements in vintage racing.

  "Since these cars are very rare and because of how dangerous racing is, we tell our customers we build to a standard, not to a price."
  — Nick Palamini [07:30]

• Emotional Connection: Despite becoming accustomed to the unique aspects of vintage cars, Nick occasionally reminds himself of the significance and rarity of the vehicles he works on, finding fulfillment in preserving automotive history.

  "I have to remind myself that, like, this is pretty cool. The joy of some of the spectators when they see some of this rare equipment."
  — Nick Palamini [08:10]

Key Takeaways

• Economic Stability: While the slight uptick in unemployment is not alarming according to experts, ongoing tariff uncertainties continue to hinder business growth and hiring.
• Financial Strain on Consumers: Rising vehicle prices and larger loan amounts are placing increased financial strain on American consumers, particularly those with lower credit scores, leading to higher delinquency rates on car loans.
• Unique Careers in Focus: The "Odd Jobs" segment highlights the niche yet vital roles that contribute to preserving history and passion-driven industries, showcasing the personal stories behind specialized professions.

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For those interested in understanding the intricate dynamics of the economy and personal finance, Marketplace Morning Report continues to provide insightful analysis and real-world stories that resonate with everyday experiences.

Transcript

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[Sabri Ben]

The economy has been through a lot this week. From Marketplace, I'm Sabri Ben, ashore in for David Brancaccio. It is a week that felt like a lifetime for this economy. We had a delay on new import taxes on goods from Canada, Mexico, China. Then the tariffs came, then they changed. Then there was a pause. Today we got jobs numbers from the Bureau of Labor Statistics. The unemployment rate ticked up a tenth of a point to 4.1% in February. 151,000 jobs added to the economy. Christopher Lowe is chief economist at FHN Financial in New York and is here to talk about all of it. Hi, Chris.

[Christopher Lowe]

Good morning, Sabri.

[Sabri Ben]

Are any of these numbers something to be concerned about? 4.1% unemployment, 151,000 jobs added.

[Christopher Lowe]

You know, 4.1% unemployment rate is right in the middle of the range of the last six months. So it's not that bad. But it would have been up more if not for the fact that the labor force fell. I'd say overall lackluster employment numbers in February.

[Sabri Ben]

And of course, we cannot end this week without talking about tariffs. When is all of this look, I mean, chaos basically going to filter into the economy and have actual consequences?

[Christopher Lowe]

It already is. Hiring plans by businesses are on hold until they have some certainty of the environment they're operating in. That could take months. Canada is sick of the on and off and is already retaliating. Ontario Electricity. They have imposed a 25% tariff that stays in place no matter what they do in terms of putting them on and putting them off, as long as the threat of tariffs remains.

[Sabri Ben]

Christopher Lowe, chief economist at FHN Financial in New York, thank you.

[Christopher Lowe]

As always, thank you, Sabri.

[Sabri Ben]

More Americans with lower credit scores are falling behind on their car loans. Fitch Ratings this week finds that 6 1/2% of subprime borrowers were at least two months late on their car payments. That is the highest level since the agency began collecting this data in 1994. Marketplace's Henry Epp is here with more. Morning, Henry.

[Henry Epp]

Hey, Sabri.

[Sabri Ben]

Why is this happening?

[Henry Epp]

So some of this may be seasonal, as a Fitch representative told Bloomberg Delinquencies on car loans typically increase in January and February. And, you know, that's after holiday spending splurges and before many Americans get their tax refunds, which some borrowers use to catch up on late payments. But higher inflation and interest rates could keep pressure on lower income people who are struggling to stay up to date on their car loans. And they're not the only ones who are falling behind. The Federal Reserve bank of New York found that auto loan delinquency rates increased in 2024 across all income levels.

[Sabri Ben]

Yeah. Why would it be so widespread like that?

[Henry Epp]

So a big factor here would appear to be the price of new and used vehicles. They've stabilized over the last couple years, but they're at a level that's quite a bit higher than pre pandemic. The average new vehicle now goes for over $48,000, according to Kelley Blue Book. That's about $11,000 more than in early 2020. And those higher prices have led buyers to take on larger loans. So nearly a fifth of new car buyers agreed to a monthly payment of $1,000 or more at the end of last year, according to the car research site Edmunds. And that is a record high.

[Sabri Ben]

All right, Marketplace is Henry Epp. Thank you so much.

[Henry Epp]

Thanks, Sabrina.

[Sabri Ben]

And the company that owns Walgreens and Duane Reade Pharmacies, among others, is gonna become a privately held company. A private equity firm called Sycamore Partners has agreed to pay $10 billion in cash for Walgreens as well as take on some of its debt. All in all, Sycamore may end up paying almost 24 billion. At its peak in 2015, Walgreens was worth $118 billion. If you want to be savvy about the economy, the Marketplace newsletter is just what you need. Every Friday, you'll get explainers and analysis that make sense of everything from the moving markets to grocery prices. No jargon, no hype, just smart takes delivered to your inbox. Sign up [e-mail] subscribe.

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[Sabri Ben]

Now we turn to our Odd Jobs series. What's that like? For today's edition, we'll hear from a vintage race car mechanic, Nick Palamini. He works at GMT Racing in Connecticut, where he preserves old race cars, very old race cars, and he gets them ready for primetime. It's a career he says is inspired by his roots.

[Nick Palamini]

A lot of the mystique of vintage racing is the sounds and the smells, like when the green flag falls, the roar of the eng.

[Sabri Ben]

Gentlemen, start your engine.

[Nick Palamini]

As one of the racing organizations has as their tagline, other people look at art. We race it. My name is Nick Palamini and I work on vintage race cars. I grew up listening to all sorts of racing stories from my father, from his exploits in the late 60s. Since he wasn't into sports, he shared what he did know with me, which was racing. When I was like eight years, he took me RC car racing and then when I was 12, we went go kart racing. And then in my 20s, I bought my own race car. When I was growing up, I always had an affinity for mechanical things. Out of high school, I started my own auto restoration shop. After 2008, the economic troubles that we had then, I couldn't quite make my own shop viable and I ended up getting in contact with a race shop here in Connecticut and they specialized in vintage cars and I ended up getting a job here. My shop was mainly vintage cars, but what I was mainly doing was replacing rust and getting stuff running again. Then when I came to work on the vintage race cars, it's a lot of the same stuff, only there are very specific ways that you have to do things to prepare a car for racing as opposed to just driving on the street because each component is getting pushed to its limits.

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[Nick Palamini]

Since these cars a are very rare and because of how dangerous racing is, we tell our customers we build to a standard, not to a price. They're fairly wealthy individuals, some more than others. But like I don't know how to say it with, you know, without being impolite, like it's generally going to be more expensive than your average person is going to be able to spend. Much less want to spend. I don't usually get to drive the customer cars on the track. Occasionally I will take one out for a test session. I do have a valid racing license and my own race cars. A few years ago they had a Formula Junior gathering and one of our customers couldn't make it, but he still wanted his car to be in the event. So I ended up being able to race his car. Since I've spent most of my life racing, starting with go karts and then with my own race cars. Some of it was very familiar, but some of it very unfamiliar because I'd raced large sedans which are very heavy, they're ponderous, they don't do anything in a hurry. The Formula Junior car was very quick, very responsive, and never having driven anything that was mid engine before also was a bit of a steep learning curve. Like I always joke that had I not gone into this line of work, I might have gone into something like archaeology, where I'm delving into the past and trying to preserve history. I can get immune to the vehicles where, like, it's just another car. It doesn't matter how rare or expensive it is. But I do remind myself periodically that, like, this is pretty cool. The joy of some of the spectators when they see some of this rare equipment. You know, a lot of people don't see these things every day, whereas I do. And I have to remind myself that, like, it is pretty special and these vehicles are pretty special.

[Sabri Ben]

We know our listeners have some pretty cool and unique jobs out there, so if you'd like to share yours, please do. @morningreportplace.org In New York, I'm Sabri Benishore with the Marketplace Morning Report from apn, American Public Media.

[Janelia Espinal]

Consumer confidence had its sharpest monthly decline since 2021, which means we're all in our feels about money. And while uncertainty is the only constant these days, it's also a great reason to get serious about understanding personal finance. I'm Janelia Espinal, host of Financially Inclined, a podcast from Marketplace that makes learning about money simple. Learn about practical skills like negotiating job offers, dealing with money in friendship and love, entrepreneurship and student loans. Get serious about your money and build a life you've always dreamed of. Listen to Financially Inclined wherever you get your podcasts.