“As the economy heads into recession in the second quarter of 2023 in the U.S., we are basically getting to about 5 percent unemployment level in 2024,” she said. “We are at 3.5 percent now.”
Bodeck said the economy is relatively healthy, but some indicators, such as the savings rate, show potential cracks. The savings rate is currently about 2.3 percent. Just a few years earlier it was about 7.5 percent.
“Inflation is impacting consumers; they’re not saving quite so much,” Bodeck said. “This relates to how we think the consumer is going to behave.”
Delinquencies are the leading indicator of what happens to net charge-offs — the debt owed to a company that is unlikely to be recovered. Most likely, sometime in the second half of 2023, the net charge-offs will be at 2019 levels, she said. When they reach that level, they will progress mostly in line with employment levels.
The consumer is seeing the impact of inflation. “Whereas before it took about 34 months for a consumer to pay off a new vehicle, now it’s almost up to 44 months, so their financial obligation is much more,” Bodeck said. “Consumers got themselves in a little bit harder financial position and more obligations” since the pandemic, she said.
The amount a consumer finances for a vehicle also is up to about $41,000 from $34,000. The monthly financial obligation for the consumer also is substantially higher. Before, consumers had to pay $450 for a lease; now it’s $560 — so $100 more per month for a consumer to own a vehicle whether it’s a lease or loan. For a loan, the payment is slightly higher.
The result, Bodeck said, is “we believe the consumer is going to transition to cheaper vehicles.”