An Auto Loan Debt Crisis Looks Imminent
Car loan debt has ballooned, delinquencies are still rising, and major lenders are leaving the market. Is an auto loan debt crisis coming soon?
So basically,
New vehicle prices are not in line with their actual value, so banks are making loans that aren’t covered by the collateral. This is shit management by the banking industry. If it’s impossible to get an auto loan then vehicle prices will eventually fall as supply stacks up. Banks are feeding this cycle by being unrealistic in these loan assessments.
But... But price only go up?
The sky daddy book of economics says price only ever goes up and concentrated wealth is a good thing
This is what my partner and I call a "state's right to what" problem. The centralized wealth says that centralizing wealth is good. Centralizing wealth is good for whom, Mr. Finance?
So either banks make money or banks take money.
Well, yes and no. It’s grey like most things in life.
Banks and credit are a means to “grow the pie” by allowing us to factor in future value. Before banks and credit, the world was a zero sum game where one person only had because the other person had not.
They do serve a real purpose but are only valuable when properly managed.
4 probably won't happen. The mortgage bailouts were a bit of a special case, because the debt was rolled into securities and spread all over the place. To my knowledge there isn't a secondary market for auto loans, so the scope is limited to individual banks.
What may happen is the FDIC guarantees all deposits like they did with silicon valley bank, which is less bad than a full on bailout.
They won't have to worry about selling the cars, some used car dealer will take them off their hands gladly. What the banks and the financiers will have to worry about is how to bundle all of that bad debt into CDOs. There's a movie about this I think.
No used car dealership is going to take a 2007 Chevy Cavalier for 35k and yet that loan was approved during COVID, and subsequently repo'd.
No dealer will ever unload that car without a huge loss.
It's the banks problem to sort out. Until they sell the car to a dealer - they don't lose much. It's all 'in the air' on the books. They have a 35k loan and (in theory) a 35k car.
Why wouldn't they? You said it yourself, they will get bailed out. This is classic moral hazard. Once you remove risk of lose people will make decisions that are reckless.
Exactly. Consequences are necessary to curb reckless behaviour. That’s why the leaders of these entities should be punished separately.
Don't forget people also not being able to go to work anymore potentially
Toyota is selling a basic (no ABS brakes, no airbags, crank windows) pickup in the rest of the world for $10,000. They could probably sell a version with the optional safety equipment in the US for $15-20k. But they will not sell it here and mess up the $50-100k luxury pickup gravy train.
At least they aren't doing what the big 3 do with their trucks. A mid range XLT F-150 will cost about the same as a fully decked out Tundra, and a fully decked out F-150 will set you back over $100K, but these were sold for $50-$75K just before the pandemic, so what changed? They just decided to charge more due to greed.
And also the chicken tax
Yeah there's no way they're ever going to touch the cash cow that is the Tacoma. If they had any desire to, they would have started selling the Hilux here decades ago.
Oh shit, I want one soo bad now
The shift towards massive vehicles (SUVs) and trucks loaded to the tits with tech junk is to blame. Auto industry sold the idea to Americans that their fat ass needs a compensator instead of psychiatric help.
Nah.
It's poor planing and over spending that is the issue. People who lease cars are on an endless cycle of never owning anything and always laying a premium.
Just actually buy a car you can actually afford.monthly payments on and drive the car into the ground. Every car in have owned has made it at least a decade and a 150k miles. Once you are done paying off take what the monthly payment would be and out it into two banks account split 20/80. Woth the 80% being towards a new car and the 20% being for repairs.
Auto industry sold the idea to Americans that their fat ass needs a compensator instead of psychiatric help.
True or not, that got a good belly laugh out of me.
People in power will squeeze and squeeze. They’ll crank up the interest rates. They want you to default on the equity. Take your payments and your car. That’s how they make their money.
Have to be sure they don't repo a running usuable car, then.
I understand the sentiment but please leave us decent cars on the used market.
My wife and I bought a Nissan Rogue in 2020 for 22K. 2020 model with 1400miles on it. We paid it off in 3 years. Today with 35k miles on it the trade in value is 23k at the Nissan Dealership. What a crazy time in the industry!
I bought an 81,000 mile F150 for $12k in january of 2022, it now has 100,000 miles and I'm pretty sure I could sell it for at least what I paid for it.
You only put <35k miles on it in 3 years? Damn.
12K miles per year is considered normal / average usage.
So what I'm seeing is to find any way I can to short the auto lenders so when they declare bankruptcy I can finally be able to afford a car?
"ok Google, how do I buy a short position on auto lenders?"
Car payments are a poverty trap. Save and pay cash for cars, it's harder now that used prices are absurd, but it doesn't change the math.
It's not harder. It's not possible for a vast majority of people. You're telling people that are delinquent on their auto loans to "just pay cash" for used cars that are thousands of dollars. Sure you can find a beater for $800-1500 but what happens when the transmission goes or the engine throws a cylinder? Those of us with auto loans don't have the liquidity to pay outright for a decent vehicle.
Yep, a properly maintained car can last you a long time. Thankfully used car prices in my country that are outside of the top 3 brands have very reasonable prices. My last car lasted me 18 years before we couldn't use it anymore due to emission regulations.
Mathematically it was much better to buy with a loan at a low rate. You're paying less each month on a 2% APR loan when inflation is at 4-8% like it has been the past year.
Inflation doesn't help you on a loan unless you are actually getting Inflation level raises, otherwise you have the same amount of dollars and everything else is more expensive. Also mathematically cars go down in value, so you are paying interest on money that you lost, making that loss greater.
That's the whole reason this crisis exists, because Cara with 30k are being repossessed on loans with 40k in principal left.
The best option is to ditch the car entirely.. buy an ebike instead for the price of 1 car payment, or move to an area with ample sidewalks/mass transit..
Definitely a big task, but is certainly more viable than buying a car with cash… (it most certainly was for me at least..)
The best option for single digdet percentage of the population
Ftfy
Not all of us are 23 years old, work from home, and live in hipster city. I love these alternative forms of transportation, I have a moped when I was a single and decent bicycle. It just wouldn't be practical for me to deal with highways and picking up my kids from aftercare on an ebike.
American banks fucking the world once again.
I don't understand how people buy new cars. They cost like 1/4 of a house.
I mean it depends on what you’re looking for. For some the ability to have all the features they want and not have any small issues are worth the premium. You can choose what you value.
I think it’s a different argument where people buy products outside their means.
A lot of people earn a lot of money. Especially in the US.
Hopefully. Maybe I wont see so many people who make very little money driving pickups so large they can't even park them right and then returning them 4 years later to get an even larger one.
I have an economy car. My whole family fits it, it is already more car than I actually need. I bought it when it was 5 years old. I will repair it until the point it can no longer be repaired. At which point I will buy another reliable used economy car in cash.
A car is not an experience, it is not a status symbol, it is not compensation for your tiny penis, it is not for showing off, it is a machine that moves humans and goods from A to B.
I have known a retired accountant who lived in an apartment with an oversized pickup, I have known people who make $11 dollars an hour with a bright shiny pickup, I have known a small retail store manager drive around in a Hummer they got modified to look militarish-copish, homemakers with one kid with a SUV that sits 8, people on the verge of bankruptcy telling me how they will be rich restoring a mercedes from the 70s.
"My opinion is right any everyone else who doesn't agree is wrong" if only it were that easy.
Clearly not a car person. Many people enjoy their car because they think they're cool, they enjoy them, and its how they chose to spend their money. I don't necessarily agree but they're entitled to their view as equally as you are to yours.
It's ok if they are actually spending their own money, the issue here is that those people have no self control or financial skill as they drive a vehicle they can't afford because the dealer happily drags then down the drain and they believe his lies.
Dumb idiots shouldn't be dragged down for their whole worth, people who don't know how to money need help.
But seeing how the average american only cares about: "muh guns, murica" i'd say good luck as a nation to fix their dumb dealers filthy tricks.
Money doesn't grow on trees, it needs to come from someone and that someone tends to be the tax payer when shit hits the fan.
Stop defending your own future downfall for the sake of some minimum wage workers Hummer H1.
Fine they are entitled to their dumbass views and I am entitled to laugh at their dumbasses when their life sucks. Which for most "sports utility vehicles" it already sucks due to micropenis.
My wife's head gasket went and we had to decide do we get a new car or replace the entire engine and the fact the engine was the better option these days is just wild. Those new monthly payments are wild
I mean, that kinda makes sense? An engine should be cheaper than a whole car, shouldn't it?
Ya but usually to justify doing large jobs like these you gotta weigh out how much your repairs are annually and if you put more work Into a car a year than the cost of a car payment per year it use to be betrer to just get another car.
Replace the entire engine over a head gasket?
head gasket on a gd Subaru boxer engine, who coulda guessed. Anyone with the power of access to a search engine. Do your research and stop buying crap, people. If the junk don't sell, they'll stop making it
Where are we on the whole used car market thing? This could get wiggly if tons of people can't pay their car note, but for at least the first few they might actually be able to sell and turn around some money. Not a ton, mind, but until recently it was a given that your car is worth less than you owe on it.
We were in the market for a new car about 6 months ago. I wanted to buy used, but a used version of the exact same car (except a year or two older, obviously with mileage) was roughly the same price as the new car on the lot. Needless to say we bought the new car
This is because the Banks, and dealers are floating the losses.
COVID pumped prices up so a 2015 car had a loan taken out at 35k and now it's been repo'd. If a bank/dealer takes less than 35k then they have to write that loss on their books. So it will remain on the lot until the lots are beyond capacity.
People were buying a 2015 car for 35k. Driving it home, calling their lender and saying because COVID they need forbearance. They drive that shit around for 6 months and then right up until it's repossessed 90 days later. Having driven a car around for free for 9 months. Leaving the bank with a 2015 Chevy Cavalier and a loan of 35k. Ain't nobody realistically going to pay 35k for a 2015 Chevy Cavalier.
Even if they wanted to pay it off. Financially they couldn't. They made $17/hr but nobody checks that. They take your word at the dealership.
We're going to see the 2008 of car prices for the exact same reason.
Used cars are still more expensive than their new counterparts, at least in San Diego. It's almost cheaper to buy a classic car than a used car in many cases.
I was looking at the amount of bad debt that Americans are in with mortgages, and with the moratorium over on student loan repayments, earlier this year it looked like another 2008 on the horizon. I never considered though that it would be the car payments getting defaulted on.
Most Loans after 2008 have a shit ton of checks and balances to make sure you really really can afford it. If you've gotten a mortgage since then - it has honestly felt violating.
Those checks and balances never existed for cars.
You tell me you make 100k and can afford a 90k car? Okay. Sign on the dotted line. Real life they make 17/hr.
Cars are becoming the new houses, so kinda makes dystopian sense?
People should stop buying 40k vehicles and get the shitty econbox then 🤷♂️
Yes, it sucks you can't get a free loan and stretch your $700 to 6 years.
Shitty econboxes don't exist anymore
*in the US, because we've all got tiny-penis trucks
Shitboxes are the bread and butter of car companies in modern countries
Shit, entry-level cars still run you $20k or better in the US, and that's without any options. I just had to price a new car last year and literally nothing new was on the market in my area for less than $25k. Your old Toyota Tercel that you bought for $6k in the 80s doesn't exist anymore. That brand-new Camry that'll run for 30 years and only costs $12k is now double that, at least.
the last gen Aygo was 10K€ new.
the current gen Aygo "X" crossover SUV replacement is 16K€.
i would have bought one.
sad to see toyota of all companies to stop making small cars.
This is just an anecdote, not a defense or counter argument by any means. Somebody around me has figured out how to import what I think is a Suburu Sambar. It's a micro suv/truck, and I've seen more than three around my area suddenly. I've also seen a couple of right hand drive skylines all of a sudden, so I don't know if something has changed, but maybe importing is an option