As last year ended after a 2022-23 cycle that saw 11 interest rate hikes, the dual pressure of the high rates and inflated prices started to reveal a crack in the consumer foundation.

A fourth-quarter report by the Federal Reserve Bank of New York showed automotive loan delinquencies were on the increase, especially among younger borrowers. The striking point of the shift was that the share of loans in arrears exceeded prepandemic levels.

Annualized, nearly 8% of auto loans slipped into delinquency in the quarter. The bank reported that the share in a state of serious delinquency – 90 days or more – hit about 2.7%, up from 2.2% a year earlier.

Consumer segments with higher rates of delinquency were millennial and low-income borrowers.

The report indicated that loans taken out in 2022 and 2023 were performing worse than those opened earlier. It theorized that higher vehicle prices and the possibility that consumers “may have been pressed to borrow more” at higher interest rates could be to blame.

Automotive loan debt was up by $12 billion quarter-over-quarter and by $55 billion year-over-year to $1.6 trillion. The bank said it’s been growing since 2011, though the average origination total grew by less than 1% per year from 2015 to 2020. Then in 2021, it surged 11%, followed by a 10% jump in 2022.

Though vehicle prices have been falling from pandemic highs, government stimulus payment savings have largely been spent and loan forbearances have disappeared, leading to rising delinquencies, particularly for credit card and automotive loan debt.

The development is another signal that the ease of pandemic-era selling has faded, making a return to fundamentals a must for dealers, particularly F&I departments, which can help balance the return of the auto buyer’s market.

Dealerships must transition from the high times of easy sales to more of a nose-to-the-grindstone work ethic, taking advantage of sales training to bone up on both time-tested approaches and new ones.

Awareness of a growing number of buyers, particularly younger ones, struggling with delinquency issues is good intelligence to keep in mind in the F&I office.

Hannah Mitchell is executive editor of F&I and Showroom. A former daily newspaper journalist, her first car was a hand-me-down Chevrolet Nova.