‘The share of subprime auto loans that were 60 days or more past due reached a high of nearly 6.5 percent in January and has lingered near that level, according to Fitch Ratings. Repossessions have swelled, more drivers are trading in vehicles that are worth less than they owe and lenders such as CarMax and Ally Financial have warned investors about auto loan performance.
Despite stubborn inflation and punishing tariffs, the U.S. economy on its surface has appeared to hold up relatively well. The stock market continues to climb, company executives for the most part remain upbeat and consumers overall are still spending.
But the weakness in the auto market is one of the clearest indications that low- and middle-income families – the economy’s foundation – could be starting to buckle. Because many Americans need their cars to get around, auto loan delinquencies can be a telling gauge of financial hardship.
I think the outlook for our national economy is a lot darker right now than our government leaders want to admit. The lack of consistent, reliable government data certainly doesn’t help things.
Most folks can’t afford brand new cars for $50K. Sounds like they’re having trouble paying for their used cars too.
Who would have guessed that the business of selling and financing expensive vehicles to people who can’t afford them might result in a certain percentage of customers defaulting on their loan? Yeah, I never would have guessed that either.
Seriously though, the cost of a new vehicle has vastly outrun what most people can reasonably afford to pay. We need a modern-day economy car, with an MSRP of $15-20k. Not big, expensive trucks and SUVs.
Buyers are choosing large vehicles, the cost of efficient powertrains to move heavy vehicles has driven up prices.
As for small cars: Corporate Average Fuel Economy goals are so high that manufactures no longer benefit from increased CAFE numbers from compact cars. The result there is no incentive to offer compact cars at a loss.
A significant difference between a home forclosure and a car repossesion is that if your home is forclosed you generally have a year before you’re evicted and you can generally find a rental but if your car is repossed you may no longer be able to keep your job.
Further, while home mortgages are generally bundled and sold on the “Bond Market” as Mortgage Based Securities with no recourse, Subprime (used car loans) are generally held by the smaller lenders like Credit Unions and S&Ls. who will bear the loss.
And, if the previous owners were in such dire financial straits that the vehicle was repossessed, there is a strong likelihood that they couldn’t afford to properly maintain the vehicle.
A major cause of this problem is that car prices have gone way up, but wages (especially for lower income) have stayed stagnant. When you’re in that situation - even the slightest hiccup in finances can have dire consequences. I’m sure there are people buying vehicles they shouldn’t, but many are buying the cheapest vehicle they can afford.
Maybe, but they need to get to work somehow. Public transportation is nearly ninexistent outside the large cities. There are some charities that repair donated vehicles and give them to people that can’t afford to buy one, but need a car to get to work.
I suppose there are many situations that result in a car repossession. I just haven’t had much exposure to these folks. Those on the edge have likely been pushed beyond their limits over the last few years. Hard to really make broad assumptions as to their situation. Bad decisions, job loss, relationship issues, who knows?
One stands out in my mind though back in 1972 that I have never understood. My district manager would show me his checks of $3000 to $5000 a month back when that was a lot of money. I guess he was trying to motivate me. Drove a fairly new Chevy but lived above a bar. Said h3 only drank to oblivion once a month but outside of the district. Something clearly wrong with the guy.
So one morning he had me follow him to a town about 20 miles away and wait outside a bank for him as he turned in his keys. Then we drove to the next town where he picked up an old car to drive. I don’t know what it was. So rent was probably $100 and car payments not much more back then. Never understood how he couldn’t keep up and never said. We parted company after about six months. Normally I’m a decent judge of character but this guy was poison. About four years later I had a good job with people I respected and he showed up at my new house wanting me to work for him. Like a divorce, once you see their true character, never look back.
Had a guy that worked for me with five kids. Always complained about money. When I’d pass out checks he actually cleared more than I did. Financed baby furniture then joked when they tried to repossess it. Years later when his mother died, his sister took him to court for stealing from the inheritance and won.
My banker told me they look at income and character but character is more importa
Right when I got out of college, I worked briefly with this guy my age. He had a habit of buying all kinds of flashy things for his truck, like a car stereo, wheels, etc., as well as other non-car related items. One day I said, hey man, how do you afford all this? Apparently his MO was to put everything on store credit cards. And when he would max one card out, he’d just go get another card. He was maybe 22 years old and had something like $30K in credit card debt. He said his dad came into some money somehow and wrote his son a check to pay off all the credit card debt. My friend instead took the check, I think cashed it, and threw a huge party for his buddies.
I lost touch with the guy, but last I heard he was in jail. Not entirely surprised.
Wages over the period from July 2024 to July this year, have increased per the article below..
Now looking at this state by state, NH, TN and the Dakotas have not shown any increase but the rest of the country has. Vermont seems to be strong but that is bright spot in the northeast.
Similarly, my brother knew a guy like that, and he wound up in jail by his late 20s. Apparently, he learned a new “skill” behind bars, because his next venture was burglarizing Post Offices, and due to a very long prison sentence, my brother never saw him again–which was a good thing.
Well the bls has proven to be a source of bad information. Not that it is not true but their information is based on a very small sample of businesses that volunteer the information. Then again the average where some high demand jobs had a 50% increase and others maybe none at all. But I didn’t study the article once I saw the source was the bureau of labor statistics.
I heard that people often paid for their cars but not their houses based on the rubric that you can live in your car but you can’t drive your house.
Those are means, not medians, right?
The BLS is the best source of information, uses the largest sample of businesses of any source. Of course businesses have to volunteer the information - do you want it otherwise? It publishes monthly numbers then adjusts them quarterly and annually when they get more-complete information. If you don’t like the monthly numbers feel free to ignore them. Some find them useful.
I heard Emily Stewart from the Business insider on Marketplace this evening on the market for used vehicles. She attributes the shortage of used vehicles to the depressed market for new and leased cars during the pandemic. What's driving used car prices?