Just an obvious question...if the union gets a 10-percent rise in wages, and the $45,000 car goes up to $50,000....can the general consumer afford the car?
I used to think car loans would max out to 48 months, and noted that the trend then went to 60 months, and in the last year...noted the next trend as being 72 months, and a few even willing to budget for 84 months (7 years).
This past summer, I noted the repossession rate nearing 20-percent. So my logical question is...what will a bank do with 3-year old car that they repossess...which marginally holds 50-percent of the original value? If you were asking for a dozen problems to relate to 1929, and the 1930s...isn’t this an example of how bank failures will start to occur?
Well, unlike all those EVs in the dealer lots, there's still a chance that someone will purchase the used ICE at a slightly marked up prices. The market will discover the price eventually, but yes, some of these dealers are going down, customers defaulting, and both will be taking some banks with them.
“...So my logical question is...what will a bank do with 3-year old car that they repossess...which marginally holds 50-percent of the original value? If you were asking for a dozen problems to relate to 1929, and the 1930s...isn’t this an example of how bank failures will start to occur?”
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The bank will auction off the car repo and the borrower is liable for the difference between the auction price and the car note balance. Of course, some of that debt will be non-collectable however the bank can place liens on property and/or assets for in many cases up to 10 years. In the end those who pay off their obligations will subsidize those who do not pay off their obligations.
The 1929-1933 bank failures had more to do with depositors removing their money from their bank in a panic than bad loans, not to minimize the impact of bad loans. Today the FDIC insures deposits however it is insurance, and the bank pays a premium for this insurance.
The big question is just how solvent is the FDIC in the case of mass bank runs? How much money is on deposit in commercial banks? We in the USA are not the big savers we once were, we can’t take out deposits that don’t exist. If I were faced with a car repo or mortgage foreclosure and had money in a savings account, I would use that money to hold off the foreclosure not to hid under the mattress or continuing to fund a lifestyle I cannot afford but not all would do that. I view the increase in car repos as proof that many don’t have much in the way of savings not an impending run on the banks. Of course it isn’t as simple as that and this is just my opinion.
So as for me I say get out of debt now or at least put in place a plan to pay off your debt and work towards that goal, pay off your mortgage and put some monies in the bunker. If the economy melts down those with little to no debt and a savings cushion will do far better than those with thousands in credit card, personal, car and mortgage debt. If the economy doesn’t melt down you would have taken the necessary steps to get your financial house in order. I say “you” in the general sense not trying to imply that your specific finances are in disarray.
Inter the motor scooter, stage right..
inexpensive to buy, cheap to keep, and no parking fees.. Many nations are covered with them, wall to wall.. I've owned several, and I like'um.. :)
“what will a bank do with 3-year old car that they repossess”
Car dealers often have finance systems independent of banks I believe.
I’ve thought of investing money in them, but I don’t trust car dealer loan underwriting given the “nobody walks” commercials.