The U.S. car market faces a perfect storm that is rapidly engulfing ordinary car owners across the country. The clearest sign of this is the rising rate of auto loan borrowers who are falling behind on their monthly payments.

As of January this year, 6.6% of subprime auto borrowers were at least 60 days past due on their loans, according to a report by Fitch Ratings.

This is the highest rate since Fitch started collecting this data in the early 1990s. And things are not expected to get better. The report says the subprime segment of the auto loan market faces a “deteriorating outlook” for the rest of 2025.

This is alarming given the size of the auto loan market. At the end of 2024, households collectively held $1.66 trillion in auto loan debt, according to the New York Federal Reserve.

Not only is that larger than the outstanding student loan balance but it’s also the largest source of non-housing debt for all households in aggregate.

Here’s how our cars transformed from symbols of freedom to symbols of unsustainable toxic debt.

The foundation of today’s crisis was laid five years ago during the pandemic. Supply chain disruptions and factory closures at the time created strange dynamics that pushed car prices higher.

In January 2022, 80% of new car buyers paid more than manufacturer’s suggested retail price, or MSRP, according to Edmunds. Used car prices were rising faster than new car prices at the time, according to Cox Automotive.

In other words, car buyers paid too much for their cars. Now, values have declined while many owners have seen a steady rise in interest rates. This shift has pushed many car owners underwater on their purchase.

In fact, 1 in 5 vehicle trade-ins near the end of last year had negative equity of $10,000 or more, according to Edmunds. The situation is grim and the outlook is just as bleak.

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While the auto market is dealing with rising interest rates and dropping prices, it’s now also facing the additional challenge of President Donald Trump’s trade war.