They're Skipping Car Payments; That's The Final Warning Sign

Forbes

7 hours ago

Stickers on the windshield of a car for sale at a used car dealership
The headlines say inflation is easing and jobs remain strong, but consumers are skipping car payments. The Fed claims to be data driven. But if you're watching behavior, not just backward-looking numbers, the signals are flashing red. Last month, I highlighted how mortgage delinquencies are rising fast. That piece resonated because it cut through the noise. By the time the official data confirms it, you're already late. Smart investors look where others aren't looking yet.
Now we're seeing it again, this time in auto loans. Delinquencies, especially among subprime borrowers, are spiking. This matters. People will skip everything else before they lose their car. That's how they get to work. If they're missing payments now, the strain is already severe. The Fed says it's data-driven. But when consumers start skipping car payments, it's no rounding error; it's a flashing alarm. LendingTree reports 5.1% of Americans are now delinquent on auto loans, with 2% at least 30 days late and nearly 1% over 90 days late. That's not just a trend; it's a red flag.
This isn't a macro panic call. It's a window into structural pressure. The dislocation is real, and markets are still mispricing it. Timing matters.
What the Data Says: The Numbers Are Breaking First
Let's strip out the noise and focus on the facts:
This isn't just about subprime. The whole credit stack is starting to creak. Borrowers with decent credit are feeling it. Leasing costs have surged. Used car values are correcting. And loan-to-value ratios are upside down; borrowers owe more than the car is worth.
When consumers start missing car payments, they're already making hard trade-offs. That's what makes this meaningful. You don't default on your way to brunch. You default when the math stops working.
This is how credit stress evolves. It starts subtly. A missed card payment here, a late auto loan there. Then it compounds. First credit cards, then cars, then homes. Right now, we're squarely in the middle of that curve and most investors are still pretending the surface is calm.
Behavioral Signals Matter More Than Economic Narratives
Every cycle follows the same pattern. Investors chase the headlines, GDP surprises, NFP beats, CPI revisions, while the real signals sit quietly in the background. That's not where the edge is. The edge is in behavior.
When someone skips a car payment, it's not forgetfulness. It's not noise. It's a signal. That person is already juggling missed card payments, overdue rent, and maybe a utility shutoff notice. Skipping the car, the last thing most people give up is a forced decision under stress. And that's where the cracks start. Behavioral stress shows up long before it hits earnings, guidance, or credit spreads. By the time management mentions it on a call, it's already in motion. If your models assume steady repayment rates, they're wrong. If you think consumer credit risk is contained, it isn't. Behavior breaks the model. Quietly. Early.
This is where smart capital plays. Watch behavior. Anticipate dislocation. Don't wait for the narrative to catch up. That's how alpha is made.
Where the Market Is Still Blind
Despite the mounting stress, markets haven't priced it in. Here's where the disconnect is clear:
Why the gap? Narrative inertia. The market is still clinging to the idea that the consumer is strong. That full employment will carry us through. That pandemic cash is still floating in the system. But that script is running out. Real wages are stagnant. The excess savings are gone. And consumers are now rolling short-term debt into higher-rate burdens. That's not stability. That's fragility.
This isn't about panic. It's about odds. The odds that we see more charge-offs, more earnings pressure, and more margin contraction in Q3 and Q4 are rising quickly. When the illusion breaks, it won't be gradual. Repricing never is. Markets wake up all at once.
Where The Opportunity Lies
Dislocation always creates opportunity. Most investors wait until defaults spike and headlines confirm the obvious. But by then, the edge is gone. The real opportunity is now, while the market is still pricing in calm.
Here's where I'm focused:
Short-Term: Risk Repricing
Select lenders are still valued as if credit is stable. It's not. Tight ABS spreads, shallow reserve builds, and overconfident multiples create clear downside optionality. These are setups for swift repricing.
Medium-Term: Forced Consolidation
Smaller, over-levered lenders may have to sell or merge. Balance sheet stress, rising charge-offs, and liquidity needs will force the issue. Expect M&A in the non-bank lending space.
Long-Term: Counter-Cyclical Winners
There's real upside in the infrastructure behind the pain. Credit repair platforms, repo tech, and smarter collections systems stand to benefit. Think in behavior, not just balance sheets. Stress creates a structural tailwind. The market still sees stability. That's the setup. Position before the shift becomes consensus. That's how real returns are made.
Watch Behavior, Not Headlines
The consumer isn't collapsing in one dramatic moment. They're breaking slowly, and the signs are showing up where few are looking, and skipping car payments is a real warning sign.
Auto delinquencies aren't just about missed payments. They're about shifting priorities under stress. When the middle class lets the car go, the thing that gets them to work, it's not noise. It's the clearest signal in the system.
The Fed won't flag it. The headlines will stay behind. But the behavior speaks first. And it's already speaking. This isn't a fear trade. It's a recognition trade. The winners in this market will be the ones who act before the data catches up.
That's how you stay early. That's how you stay sharp. That's how you keep the edge.