Shankul Bhandare
Car repossessions are increasing rapidly in Australia, indicating growing financial hardship that can have severe impacts on households, including loss of employment opportunities.
Automotive auction house Pickles has noted a notable surge in the number of repossessed vehicles, reporting a 13% increase over the past six months and an 11% rise in the last quarter.
Pickles attributes the increase in car repossessions to cost-of-living pressures and declining used car prices, which have made it difficult for vehicle owners to refinance their rapidly depreciating assets.
Banking sector data on automotive arrears also indicates that Australians are struggling to keep up with their car payments. According to Westpac’s latest financial results, the number of accounts that are over 90 days past due has doubled compared to two years ago.
Peter Esho, an economist leading Sydney-based Esho Capital, highlighted that automotive arrears serve as a crucial discretionary lead indicator of the financial distress households are facing.
“People often delay or miss car payments before missing house payments,” Esho explained.
“The home mortgage is now consuming a larger portion of household spending, causing other financial obligations to suffer.”
“With car loans, the fixed loan periods offer very little flexibility for refinancing,” Esho noted.
Australians have been struggling with rising living costs and increasing lending rates for years, leading to a significant rise in business failures and late repayments.
The extended period of high mortgage and rent payments is driving more people into financial distress, reducing their ability to pay off other debts, including car loans.
Car owners have also faced substantial double-digit increases in insurance costs and high petrol prices.
While some households may forgo their car loan payments to cover high mortgage rates or rental costs, automotive loans are still often prioritized because many people depend on their vehicles for work.
UnitingCare, a social services provider, describes car repossession as a “traumatic experience with lasting consequences.”
If the sale of a repossessed car does not cover the full debt, the borrower remains liable for any remaining balance, and their credit rating will also be impacted.
The Australian car market has experienced a volatile period marked by pandemic supply constraints that have led to long wait times for popular models, which have also kept used car prices high.
As supply constraints ease, used car prices have fallen quickly, ending the period of booming secondhand vehicle prices. This is good news for buyers, but bad news for those with auto loans.
Rating agency Fitch notes that while auto arrears are still below pre-pandemic levels, the pace of increased delinquencies is rising quickly, with arrears “likely to stay elevated due to ongoing pressures from inflation and stagnant real wage growth”.
This trend is similar to home repossession data; however, mortgage lenders typically offer more flexibility, such as loan deferments, which can obscure the true level of financial distress in the economy.
Fraser Ronald, Chief Commercial Officer at Pickles, noted that “people are opting for lower-priced vehicles, which often means smaller cars because they are more affordable.”
He explained that there is currently high demand for passenger cars, including sedans and hatchbacks, contrary to the recent popularity of SUVs.
James Voortman, Chief Executive of the Australian Automotive Dealer Association, stated that consumers are now turning to cheaper vehicles due to rising living costs. This shift has led to a significant increase in market share for competitively priced Chinese brands such as LDV, Great Wall Motor, MG, and Haval in recent years.
Voortman also mentioned that the strong demand for new vehicles seen during the pandemic is clearly waning.
“We’re hearing from dealers that this cost-of-living crisis is starting to take its toll, and they are seeing a noticeable decrease in showroom traffic,” Voortman said.
