Posted on 12/16/2022 12:31:24 PM PST by Drew68
This morning I discovered something *extremely* alarming happening in the car market, specifically in auto lending.
I'm now convinced that there is a massive wave of car repossessions coming in 2023.
Here's what I discovered (and what no one knows):
Background:
Over the past 2 years, many people took out exorbitant loans on cars.
Car values were inflated (and frankly, still are to some extent).
But many people simply had no choice and bought an overpriced a car.
Well...
Car valuations are now plummeting.
Some cars have declined in value as much as 30% y/y.
And these same people that took out these big loans are now "underwater".
Basically, they owe banks more on these cars than they are worth.
And the banks are well-aware of this...
But there is no easy solution.
You can't just put the genie back in the bottle.
This brings me to what happened this morning:
Every Friday I conduct a team meeting to recap our week.
This morning, one of our General Managers opened up DealerTrack — a portal that dealers use to communicate with auto lenders — and highlighted something very concerning:
9 of our lending partners have started WAIVING "open auto stipulations" for consumers.
Wait, wtf does that even mean?
Let me explain using a simple, hypothetical scenario:
1) Consumer takes out an auto loan in 2020/2021 on an overvalued car
2) 2022 comes around and that overvalued car is now rapidly declining in value
3) With the car declining in value, consumer now owes more on the car than it is worth
4) Consumer no longer wants the car. Maybe they outgrew it. Or maybe it keeps breaking. So consumer wants to trade it in.
5) But dealer can't trade the car in because the consumer owes WAY too much on it.
So dealer asks consumer for lots of money down to cover the difference.
6) But of course, the consumer doesn't have $1,000s to cover the difference between what they owe on the car and what it's worth.
And here comes the perfect storm...
7)
Dealer can't sell consumer a car,
Consumer can't buy a car,
And, you guessed it, lender can't finance a car!
Everybody loses! Oh no
So what happens next?
8) Lender knows that most consumers are stuck in this situation, and does the following:
WAIVES THE OPEN AUTO STIPULATION.
Meaning, the lender lets the consumer buy the car KNOWING that they already have an open auto loan with another bank!
Why the f*** would they do this?
Surely the lender knows that consumers that take out a 2nd auto loan are MUCH riskier and have a MUCH high risk of default? Right?
RIGHT?
Yes, but the lender does it because they know that the consumer will default on the other car !!!!
Dog eat dog style.
Let me be clear:
This is NOT normal.
But it's the only way lenders can finance cars and dealers can put cars on the road.
And the implications of this will be tons of repossessions.
I've been a doubter, but after what I saw this morning, I'm now FULLY convinced that a wave of car repossessions will hit in early/mid 2023.
If lenders are willing to backstab each other in order to put more loans on the road, we're in trouble.
This will not end pretty.
That's all for now.
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and the recession is getting worse.
Over the past 2 years, many people took out exorbitant loans on cars???
Ya mean tens of thousands lost their jobs, businesses, livelihood and careers thanks to BS government lockdowns..
Sounds like the used car market will be coming back to earth with a crash.
Well, add this to the fact that they were able to sell new cars for thousands above MSRP and sell used cars for as much as new cars used to cost.
For a while there, cars were waaaay overpriced because there weren't many to be had.
I worked for a residential home builder in the 1970’s. In 1978 and 1979 we were spending 80K for sticks and bricks on a 4-bedroom SFD and another 18-20K to buy down the interest rate so the buyer could qualify for a mortgage. It was that or keep paying interest on the construction loan for the dirt, undergrounds, sticks and bricks. This all sounds very similar.
(So what happens next? - article)
BidenDepression II 2023
Pretty much any new car that is financed is underwater when it's driven off the lot unless the buyer put at least 30% down.
Have you seen the price of new vehicles?
The new price of the F-150 Lightning Pro, an entry-level model meant for commercial and business customers, will be $55,974 — up nearly 8%, or $4,000, from previous pricing and a 40% increase from the original pricing of $39,974 announced in May 2021.
OR why go cheap? For a little more you can go first class. $98,319 ESTIMATED NET PRICES5 $1,332 PER MONTH FOR 84 MONTH
And the recession is getting worse.
Bingo
The banks may want to work out some kind of incentive to ensure that the cars are repossessed in a re-sellable condition or else a lot of people just might trash their cars before they let the repo guy come tow it away.
After all, what's to lose?
True, but usually not so much that when it comes time to trade it in on a newer vehicle, the owner is so deep underwater that making a sale is impossible because the lender won't do it.
That's the dilemma this gentleman is talking about in this Twitter thread.
Was this written for a first grade class assignment?
The buyer won’t have a clear title to the first car (allowing it to be sold) until it is paid for.
I don’t see how this works unless the buyer just walks away from the first car. In which case, they still have to come up with a down payment on the second car.
Sounds like it will be a buyer’s market for used vehicles soon.
Exactly. Except this blogger uses 40 one-sentence paragraphs to say the same thing. And adds exclamation points and panic emoticons.
And try to find some models on dealer lots. I ordered a 2022 Transit beginning of the year. Ford cancelled that in July and my local dealer had to reenter it as a 2023 order immediately. I'm still waiting and likely won't see it until the summer of 2023 which is roughly 1.5 years after my initial order!
New or used, the car market is in turmoil thanks the b.s. over the big covid lie.
If they need a car and can’t afford to trade in their underwater car for something they
d prefer, then they just keep paying out the loan. They had already figured out they could swing the payments and they get whatever years of car use until they get their loan paid off.
Now, if they get laid off and end up not being able to afford the car, then they more likely just let it get repossessed. I don’t see any scenario in which taking out a second loan for a second car makes any sense at all.
Unless, of course, I am missing something.
Just wait until all electric vehicles are forced on us. All those gas powered cars will be worthless and sold at scrap value. Then the cheapest electric vehicles will cost at least half again as much as did the gasoline version.
No, it's a multi-post Twitter thread, as I tried to make clear when I posted it.
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