Car Repos Are Exploding. That’s a Bad Omen.

The jobs report and minutes from the Federal Reserve’s June meeting were the economic highlights of the week, but they are, respectively, a lagging indicator and old news. This column instead digs into the auto market, where there is an underappreciated ticking time bomb. Lucky Lopez is a car dealer who has been in the business for about 20 years.

In recent meetings with bankers, where he bids on repossessed vehicles before they go to auction, he has noticed some common characteristics of the defaulted loans. Most of the loans on recently repossessed cars originated during 2020 and 2021, whereas origination dates are normally scattered because people fall on hard times at different times; loan-to-value ratios, or the amount financed relative to the value of the vehicle, are around 140%, versus a more normal 80%; and many of the loans were extended to buyers who had temporary pops in income during the pandemic.

Those monthly incomes fell—sometimes by half—as pandemic stimulus programs stopped, and now they look even worse on an inflation-adjusted basis and as the prices of basics in particular are climbing.

Back in 1983, I worked as a repo man for Bobby Sides used car dealer. It was the following year after they had a huge flood from a storm that came through and did a lot of flood damage to things. Most of the cars on Side's lot even were damaged, but we cleaned them up, and eventually the smell was mostly gone and he sold them all at a huge discount.

He had this black guy named Bill who worked the night the clubs looking for cars in the parking lots. When he found one he would call me on the pay phone, and then go in to keep the brotha busy until I was able to take the car.

The guy had a 22 rifle in his trunk in case there was trouble.

Bobby sides would sell the same car 5 times a year. His used car dealership saw mixed race couples coming a mile away. He would give them sweet deals, knowing that 85% of them would miss their payments within 2 Months.

That's when Bill and I got together. We got paid $200 between us for every car we were able to find. He did the dangerous work, and got $125, I got $75. All I had to do was roll up behind the vehicle, hook it on and take off. A few block later I would pull over and secure everything and take the car back to Bobby Sides car lot.

I didn't own a gun back then, but I kept an extra large tire iron with a piece of flat metal welded to it as a weapon, just in case. Never had to use it, but Bill did pull out his 22 a few times.

Once I was backing up to a car and the guy came running out of his apartment with some friends. Bill stood by his car pointing his rifle, and they stopped cold. I got away, and later met him back at the dealership. All was well. Heck, he even knew one of the guys. They knew he was just doing his job.

I agree on that. Why pay for the automatic depreciation you get once you get the new car off the lot? Makes no sense.

Unlike a new house, who’s price goes up, until the house is trashed or the neighborhood goes South, a car’s value never goes up.

Even classic cars that are restored seldom if ever increase in value.

I purchased one new vehicle in my life, and never again.

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