Concerning sign amid GFC-style crash fears

Everyday punters are making a financial mistake at record rates, which some see as an eerie reflection of the economic conditions leading to the 2008 crash.

In a sign the global economy is on the brink of a 2008-style crisis, a worrying trend is unfolding in the US.

As concerns mount about the effects of Donald Trump’s trade war and the lingering impact of inflation, American drivers are desperately trying to pay off their car loans in an increasingly hostile economic environment.

Nearly 6.6 per cent of subprime auto borrowers (people with low credit scores) were at least 60 days behind on their car loans in January, according to analysis from Fitch Ratings, a credit-rating company based in the US.

The 2008 financial crisis was due, in large part, to a massive surge in defaults for subprime mortgages – in other words, massive numbers of high-risk borrowers couldn’t pay off their home loan debts, resulting in a devastating stock market plummet.

Despite the car loan situation appearing to be an eerie reflection of the economic conditions leading to the 2008 crash, experts say there is no immediate need to panic.

Head of Economics at Macquarie University Professor John Romalis erred on the side of caution in his assessment of the situation, suggesting the current vehicle loan defaults were closer to a symptom of economic stress than a catalyst.

“I doubt that the subprime car loan default rate is a good indicator of a future GFC, which had much deeper financial causes,” he said.

“While it may be indicating some real financial distress for subprime borrowers, it might also be due to deliberate defaults. Used car prices surged during Covid due to disruptions in the new car supply chain. They should have come down to more normal levels now, so more cars are worth much less than the outstanding loans.”

A Dodge Ram speeds down the highway. Picture: y_carfan

As the lowest and highest classes become more disparate, American motorists are paying higher prices for insurance, repairs and even vehicles – all on top of general cost of living increases like housing and groceries, and a stagnation in wage growth which has lasted almost three decades.

Speaking to CBS News, Los Angeles resident Alejandra Graciola said she bought a $60,000 (AUD $94,200) electric vehicle in 2023, but is struggling to keep up with her monthly $930 (AUD $1,460) payments.

“Almost $1000 (AUD $1,460) for a car is just a little crazy, now I’m stuck with it,” she said.

Mr Trump’s decision to start a trade war with some of his country’s most prominent allies – including Australia – has seen the S&P 500 drop by more than 10 per cent since February, wiping US$5 trillion (AUD $7.8 trillion) off US stock values and creating an environment in which vehicles will likely end up costing even more.

The price of gasoline is displayed at a gas station on March 06, 2025 in Chicago, Illinois. Gas prices are expected to rise in several regions of the United States that rely on Canadian oil after the Trump administration implemented a 10 per cent tariff on all Canadian oil products. Picture: Scott Olson / Getty Images via AFP

Mr Trump previously signed an executive order to slap massive tariffs on all imported goods from Canada and Mexico, but has since elected to hold off on imposing them until at least April.

“I’m not going to bend at all … we’ve been ripped off for years, and we’re not going to be ripped off anymore,” he said last week.

US President Donald Trump talks to members of the media. Photo: Jim Watson/ AFP

“There will be a little disruption, but it won’t be very long,” said Mr Trump, referring to the falling stock market.

Should the tariffs come into effect, the US auto industry will be forced to jack up its prices for a number of iconic vehicles, including Dodge Ram, Chevrolet pick-up trucks and assorted Mazda hatchbacks – all of which are exclusively manufactured in Mexico.

But it’s not just the vehicles themselves that will become even more unattainable to the average American - Trump tariffs will also have a huge impact on gas prices.

Canada is the number one supplier of crude oil to the United States, making up 60 per cent of total American oil imports according to the US Energy Information Administration.

Both Trump and his Treasury Secretary Scott Bessent have been unable to guarantee whether or not a recession is on the cards.

US Treasury Secretary Scott Bessent speaks to reporters outside the West Wing of the White House on March 12, 2025 in Washington, DC. Photo: Mandel Ngan/ AFP

The average cost of a new car in the United States has risen to $47,000 (AUD $73,800) brand new, or $25,000 (AUD $39,200) for a used car.

Borrowing rates have increased more than 9 per cent on new cars and just under 14 per cent for used cars, and incidental costs (insurance, repair and maintenance) have risen 33 per cent since 2020.

If Mr Trump’s tariffs come into effect, vehicle prices are likely to jump between $4,000 (AUD $6,400) and $10,000 (AUD $16,000).

On Friday, analysts from Goldman Sachs increased their predicted chances of a US recession from 15 per cent to 20 per cent, keeping Americans – and the rest of the world – extremely uncomfortable.

Originally published as Concerning sign amid GFC-style crash fears