High-income auto consumers at risk for default (Under the Hood)

A $2,400-a-month payment was enough to derail rapper MC Hammer ’s auto loan, prompting JPMorgan Chase Bank to file suit for the unpaid balance. Lawsuits like these may become more common, even for higher income individuals, as transaction prices and delinquency rates rise . Chase filed suit in California Superior Court on July 31 against MC Hammer and his U Cant Touch This LLC for the unpaid principal on his $146,000 loan. The rapper, who reportedly has a $2 million net worth, had financed a Land Rover Defender in March 2023, secured by a 60-month loan with a 9.89% interest rate. Hammer’s monthly payment was $2,433.97. According to court documents, Hammer still owes $76,732.79 after failing to make payments throughout most of 2024 and paying only $10,000 on the loan in 2025. That $100,000-plus price tag is par for the course for luxury brands like Land Rover, and it’s about the amount of money a consumer would have to spend to take full advantage of the tax savings in the newly passed One Big Beautiful Bill Act . Luxury ATPs rise The average transaction price for a Land Rover hit $109,087 in July, compared with $95,506 in July 2024, according to newly released Cox Automotive data. Porsche ’s ATP approached $120,000 last month, up from $114,000 in the prior year. To score the $10,000 annual tax deduction from the One Big Beautiful Bill Act, a consumer would likely have to purchase a vehicle in the $110,000 to $130,000 range. On a percentage basis, Land Rover’s average transaction price climbed 14.2% year over year, second only to Cadillac , whose ATP increased 14.6%. Meanwhile, Infiniti transaction prices have risen 14.1% in the past year, according to Cox. Plus, while July transaction prices across all auto segments averaged 1.5% growth YoY, ATPs at Porsche, Mercedes and Lincoln increased at more than double that pace, Cox noted. By comparison, the industrywide new-vehicle ATP was $48,481 in June, up 1.5% YoY and down 0.1% MoM, according to Cox. New-vehicle ATP

[caption id="attachment_58354172" align="alignnone" width="1015"] (Courtesy/Cox Automotive)[/caption] Those higher transaction prices — combined with other financial strains — appear to be taking a toll on consumers. Living paycheck to paycheck Though it stands to reason that lower-income households might commonly live paycheck to paycheck — spending nearly all their earnings each month with little left over for savings — higher-income households are facing similar financial pressures, according to a report from Bank of America Institute . About 35% of households with incomes below $50,000 per year are living paycheck to paycheck, up 3 percentage points from the rate recorded in 2019, according to Bank of America internal data. But among households with incomes exceeding $150,000, the increase between 2019 and 2024 was more dramatic: It increased 5 percentage points to 20%. In other words, one of every five affluent earners is being squeezed by ballooning living costs, like cars, housing and health care. Along those lines, delinquency rates remain elevated. Last quarter, 4.4% of outstanding debt was at some stage of delinquency, according to the Federal Reserve Bank of New York ’s report on household debt and credit. Serious delinquency up Within the auto sector, 30-day delinquencies held steady at 7.96%, but an increasing percentage of loans slipped to the 90-day-delinquent category. Specifically, 2.93% of outstanding loans in the second quarter transitioned to the “serious delinquency” bucket, as it’s called, up from 2.88% sequentially. And consumers anticipate that those rates will climb even higher, according to the N.Y. Fed’s Survey of Consumer Expectations released earlier this month. The monthly internet-based survey of 1,200 households is designed to gauge consumers’ forecasts on household finances, inflation and the housing and labor markets. In July, 12.28% of respondents admitted that they would likely miss a debt payment within the next three months, compared with 12% of respondents sequentially and 13.29% year over year. When analyzed by demographic, the consumer expectation survey showed that lower-income borrowers are improving their ability to make minimum debt payments, unlike their higher-income counterparts. Among consumers with incomes of less than $50,000, 17.51% expect to fail to make a minimum debt payment in the next three months — down 157 basis points YoY. Yet among households of $100,000 in income, 6.12% expect to fall short on minimum payments — an increase of 34 basis points, according to the data. Against a backdrop of higher auto loan transaction prices and payment constraints, consumers will continue to be pummeled by financial burdens and could face an increasing chance of being sued by their lenders for default. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 15-17 at the Bellagio Las Vegas. Learn more about the 2025 event and take advantage of the early-bird registration before Aug. 29 here .

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High-income auto consumers at risk for default (Under the Hood)

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