Auto Loan Debt is Spiraling Out of Control

[omni550]

33% INCREASE in Repossessions -- Auto Loan Debt is Spiraling Out of Control

https://joinyaa.com/guides/repo-rates-increasing/

The Consumer Financial Protection Bureau (CFPB) is concerned about Americans getting deeper into debt. It’s not credit cards or mortgages that are raising red flags, it’s auto loans. Today, the average car payment is $733 per month. That’s nearly $9,000 a year in car payments alone. Rising car prices are leading to larger loan amounts and record-high monthly payments. The CFPB just released new data that shows auto loan delinquency rates increasing dramatically for deep subprime borrowers.


--


Is there a silver lining? If you’re willing to consider a used car, you have more negotiating power than at any point in the past year. Data from Black Book shows more used cars sitting on dealer lots for longer, and the bubble has officially burst at wholesale auctions. Dealers are eager to sell their inventory to minimize losses in a rapidly softening used car market. The result is more willingness to negotiate.
Don’t settle for the sticker price. In fact, we think you should aim to negotiate between five percent and ten percent off of the sticker price on a used car. Thinking of selling? Selling sooner rather than later will get you more money as the used car market softens.

omni

 

[ShokWaveRider]

Just those 80%'ers biting off more than they can chew, same goes for houses. More cheap cars for those who can manage their finances properly.

 

[MichealKnight]

There's gonna be some fun....

What I speak of - is 2 years ago and before that.

And I certainly don't know the quality of the loan portfolios at the banks - - usually they have a formula of A credit down to F credit - and they have a percentage they allow of each - - -well -- that - is - unless a dealership is extremely talented and can persuade them otherwise.


Anyhow, I can stay firsthand that MAINSTREAM banks - no, not mouse-houses but real banks .... did indeed approve loans that were moronic to approve. So-So credit, debt to income ratio to the max, $1000 car payments, 75, 84 month terms.. Ally, GM Financial(mind you the latter is a captive finance arm of an OEM) to name a few. Bank of America - they only approved the cherry stuff. But yeah there's some juicy bad loans out there.....

(Ever seen a bank approve someone for a car loan, when said buyer is currently under threat of repo on his current loan? It's nifty)


The only saving grace *might* be is that resale values are high, so if the banks repo the units they might not take as big a loss as in normal times.

 

[MichealKnight]

CFPB

BTW, if the CFPB truly cares....

Maybe they should do a study as to *who* is INSISTING on the nicest cars with the flashiest features..... they might be surprised that many times, the innocent lowly people the CFPB purports to protect - will do anything to get their status symbols of choice and if they can't, they will go to a buy-here-pay-here operation, and get said status symbol, - only it'll have 150K miles on it and gosh knows what the history and reliability is......

 

[JDARNELL]

This is a good interview about what is going on in the used car industry.

https://youtu.be/1lpceQT4pWk

 

[athena53]

Someone on LinkedIn posted an article about the average cost of a new car hitting $47,000. I noted that the one I bought two years ago (OK, I know that was great timing) cost $20,000 and that the crazy $47K figure likely included all the tarted- up shiny new trucks and SUVs that dwarf my little gas-sipping compact in the grocery store parking lot. They responded that people bought those to be "on trend". I responded that maybe if you needed to take out an 8-year loan to buy an "on trend" vehicle you can't afford it.

I am SUCH a party pooper.

My brother, who has been a die-hard "Buy American" car shopper is really disgusted that the major US manufacturers have pretty much quit making sedans.

 

[Koolau]

This is a good interview about what is going on in the used car industry.

https://youtu.be/1lpceQT4pWk

That's pretty long. Can you provide a couple of bullet points for us?

 

[11522914]

Someone on LinkedIn posted an article about the average cost of a new car hitting $47,000. I noted that the one I bought two years ago (OK, I know that was great timing) cost $20,000 and that the crazy $47K figure likely included all the tarted- up shiny new trucks and SUVs that dwarf my little gas-sipping compact in the grocery store parking lot. They responded that people bought those to be "on trend". I responded that maybe if you needed to take out an 8-year loan to buy an "on trend" vehicle you can't afford it.

I am SUCH a party pooper.

My brother, who has been a died-hard "Buy American" car shopper is really disgusted that the major US manufacturers have pretty much quit making sedans.

I just checked something out. In November 2020, someone hit my wife's 2013 Camry L and totaled it. We had purchased that new for 18k cash in 2013.

We received from insurance a total of $12,582 for her Camry. After waiting patiently, in December 2020 I finally found a good deal on a 2013 Camry LE (better car with more features) and paid $11,850 out the door. Car was one owner, no accidents, same miles and in perfect condition. Wife was very happy.

So today, I looked on Autotrader to see how much a similar used 2013 Camry LE would cost with the same miles. Average price WAS $17,689 and there were only 4 cars available within 75 miles. WOW. Only $311 less than I paid for a Camry L NEW in 2013. I told my wife we could make some nice change selling her car today. She didn't find that funny.

 

[Gumby]

...

(Ever seen a bank approve someone for a car loan, when said buyer is currently under threat of repo on his current loan? It's nifty)


The only saving grace *might* be is that resale values are high, so if the banks repo the units they might not take as big a loss as in normal times.

Long, long ago, when I was a brand new lawyer, my firm represented automobile finance companies. One of my very first court appearances was in an action to replevy a vehicle from a borrower who was in default. An action in replevin seeks a court order telling the defendant to turn over the vehicle when the repo man either can't find it or it's locked in the garage. So, on the day of the hearing, I was driving to court with a representative from the finance company who was going to be my witness. She was explaining to me the internal scoring system they used to grant loans (this was before FICO), which went from 0 to 100. I asked what this borrower's score was and she said 12. I said "then you guys deserve to lose your money."

 

[Koolau]

Long, long ago, when I was a brand new lawyer, my firm represented automobile finance companies. One of my very first court appearances was in an action to replevy a vehicle from a borrower who was in default. An action in replevin seeks a court order telling the defendant to turn over the vehicle when the repo man either can't find it or it's locked in the garage. So, on the day of the hearing, I was driving to court with a representative from the finance company who was going to be my witness. She was explaining to me the internal scoring system they used to grant loans (this was before FICO), which went from 0 to 100. I asked what this borrower's score was and she said 12. I said "then you guys deserve to lose your money."

Yes, but a rhesus monkey only scores 9, so I guess it's okay.

 

[JDARNELL]

That's pretty long. Can you provide a couple of bullet points for us?

Basically is it an interview with a guy who is part of the repo union. He talks about how the entire car buying process is controlled by a small group of setting values, selling cars, financing cars, and what they are seeing at the auctions. It is all artificial. Banks are so upside down they are not letting cars go at auction. Repo guys are purchasing more trucks to get ready for the massive repo effort that is fixing to start and they are also leasing space to store vehicles. He said he is picking up cars that were purchased during the pandemic that still have temporary tags on them and no insurance. Banks are hanging out on their loans as these cars were never insured or registered. He talks about people that bought high end luxury cars that just completely bailed and went to other states. Also people used their covid relief money to put down a little to drive the car off the lot and skated. This included marginal borrowers and high FICO borrowers.

He also discusses what is going to happen to car dealers who can't make their payments on their inventory on the secondary market. Basically the lenders come in and take every car and close them down. Then there is no way for them to ever get a dealer license again.

He also talks about the small community banks and credit unions that are in bad shape who are going to lose a lot of money which will reduce lending in other areas in these small communities.

It is definitely worth listening to the video even though the length if you like macro economics but also want to learn about this specific segment. Repos are already happening more coming but the lenders are holding the cars to try and limit the flow through the auctions and taking more of a bath every day.

 

[athena53]

It is definitely worth listening to the video even though the length if you like macro economics but also want to learn about this specific segment. Repos are already happening more coming but the lenders are holding the cars to try and limit the flow through the auctions and taking more of a bath every day.

Thanks for your summary. I will check out the video.

And I should have known that when the stimulus checks came out there would be a segment of the population that would use them as a down payment and be too clueless to think about future cash flow and dealers who took advantage of that. As Gumby said, they deserve to have those loans go bad.

 

[Montecfo]

There was an article in Barron's in July to this same effect. Repo man said defaults, including prime borrowers had doubled and repossessed autos were bringing half the loan amount at auction.

Banks and repo cos buying land to store all the coming repos. Bad implications for auto finance cos, banks and auto sellers.

Good news for consumers.

My buddy who owns a used car lot says August was his slowest month ever.

 

[Montecfo]

^^^^
Now I see this is the same guy as the Barron's article, Lucky Lopez.

 

[disneysteve]

There's really nothing new here. People have been overextending themselves to buy cars they can't really afford for years. Just the fact that 6 and 7-year car loans even exist tells you everything you need to know.


I paid 26K for my current car in 2020 (less after the trade in) and I paid cash. The old rule of thumb that I never even hear any more is that your car loan payment should be no more than 10% of your monthly income and for no more than 3 years. How many people actually follow that today?

 

[ExFlyBoy5]

This was bound to happen. The cost of cars seems ridiculous and out of control to me. I don't know why folks are so tied up in "what kind of car we have"...when it comes down to it, it's just an appliance. I would guess the proliferation of car ads doesn't help. I can't tell you how many times I have seen the [-]Jeep[/-] Grand Wagoneer commercial (only $115,000 as shown) and how GRAND life would be owning one. But, with the state of the economy, I think this is just another sign of the times.

 

[Out of Steam]

I've always found the idea questionable that a car loan can be secured by a mobile asset that, in ordinary times, depreciates 20% a year.

Perhaps loans to buy vehicles should simply be personal loans, secured solely by the credit of the buyer.

 

[ExFlyBoy5]

I've always found the idea questionable that a car loan can be secured by a mobile asset that, in ordinary times, depreciates 20% a year.

Perhaps loans to buy vehicles should simply be personal loans, secured solely by the credit of the buyer.

Unless you make good money and have stellar credit, banks are going to be hesitant to loan anymore than $10,000 or $15,000 without any collateral...as they should.

 

[Montecfo]

One of the more intriguing things Lucky says is that the "chip shortage" no longer exists. Auto manufacturers just limiting output to keep prices high.

Not sure I buy that given these are public companies with consequences for making false statements.

I notice Ford's "supply chain issues" that caused them to defer sales were not specified as chips and they seemed pretty confident it is just a one quarter delay.

 

[Sunset]

One of the more intriguing things Lucky says is that the "chip shortage" no longer exists. Auto manufacturers just limiting output to keep prices high.

Not sure I buy that given these are public companies with consequences for making false statements.

I notice Ford's "supply chain issues" that caused them to defer sales were not specified as chips and they seemed pretty confident it is just a one quarter delay.

I read that Ford has ~45,000 vehicles it cannot complete due to some shortage of parts. Seems to me they would like to sell those rather than have them on the lot unfinished, going to be a pain to complete some of them.

 

[Sunset]

...
My brother, who has been a die-hard "Buy American" car shopper is really disgusted that the major US manufacturers have pretty much quit making sedans.

Tell him to buy a Camry, it's made in America

 

[athena53]

Tell him to buy a Camry, it's made in America

He knows that. Dad, Grandpa and two uncles worked in the steel business. Even Dad, who was management and NEVER put bumper stickers on his cars, once had one proclaiming, "US Steelworkers say, 'Buy American'". I was the first rebel to buy a non-American brand and it was made in the USA. A few siblings have followed suit but not my brother.

 

[Gumby]

Tell him to buy a Camry, it's made in America

Honda Accords are made in Marysville, Ohio.

 

[ExFlyBoy5]

I read that Ford has ~45,000 vehicles it cannot complete due to some shortage of parts. Seems to me they would like to sell those rather than have them on the lot unfinished, going to be a pain to complete some of them.

Also, I don't know that I would be a big fan of buying a car for $30,000+ that has been sitting for months on end.

 

[Koolau]

Tell him to buy a Camry, it's made in America

Yeah, the last Mazda I bought (used with 50K on odometer) had a sticker proudly proclaiming that it had been built in the USA by the UAW. Worst car I ever owned. Didn't make it to 90K.

Full disclosure: It was really a Ford. Just sayin'..... YMMV