Car repossessions are rising sharply in Australia, in a sign of increasing financial distress that can have traumatic consequences on households, including robbing people of work opportunities.

Automotive auction house Pickles describes a recent spike in the supply of repossessed vehicles as “significant”, with numbers rising by 13% in the past six months and 11% over the last quarter.

Pickles attributes the rise to cost-of-living pressures and falling used car prices, which have hindered the ability of vehicle owners to refinance their fast-depreciating assets.

Automotive arrears data from the banking sector also shows Australians are falling behind on their car repayments, with 90-plus day past due figures now at about twice the rate of two years ago, according to Westpac’s most recent financial results.

Serious delinquencies are a precursor to repossessions.

Peter Esho, an economist who heads Sydney-based Esho Capital, said automotive arrears were a “very important discretionary lead indicator” that showed the financial pain households were experiencing.

“People tend to delay the car payment or miss the car payment before the house payment,” Esho said.

“The home mortgage is now sucking a bigger component of spending and everything else is suffering.

“With a car loan, they are fixed-loan periods and there is generally very little wriggle room to refinance.”

Australians have been grappling with years of surging living costs and lending rates, which have led to a major jump in the number of businesses collapsing, and people falling behind on repayments.

The prolonged period of high mortgages and rents is pushing more people into financial stress, leaving less capacity to pay off other types of debt such as car loans.

Car owners have also endured steep double-digit increases in insurance costs as well as elevated petrol prices.

While some households may sacrifice their car loan in order to meet high mortgage rates or rental costs, automotive loans are still seen as a priority item given many people rely on vehicles to work.

Social services provider UnitingCare describes car repossession as a “traumatic experience with lasting consequences”.

If the sale of a repossessed car does not pay off the full debt, the borrower will still be liable for any outstanding amount, as well as having their credit rating affected.

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 roughly mirrors home repossession data, however mortgage lenders typically allow customers more flexibility, which includes loan deferments, that can help mask the true extent of financial distress in the economy.

Fraser Ronald, the chief commercial officer at Pickles, said that “people will go to a lesser price point and what that means in terms of used cars is a smaller car, because they’re cheaper”.

He said passenger cars, including sedans and hatchbacks, are in demand, which rubs against the strong appetite for SUVs that has been evident in recent years.

James Voortman, the chief executive at the Australian Automotive Dealer Association, said consumers were turning to cheaper vehicles due to rising living costs, with competitively priced Chinese brands including LDV, Great Wall Motor, MG and Haval dramatically increasing market share in recent years.

He said the strong pandemic demand for new vehicles was clearly easing.

“We’re hearing from dealers that this cost-of-living crisis is starting to bite and they are seeing a lot less people present in showrooms,” Voortman said.