Posted on 07/10/2022 3:30:26 PM PDT by RomanSoldier19
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.
(Excerpt) Read more at barrons.com ...
Cars exploding? Repo men exploding? Cars possessed and then repossessed. That sounds like the first exorcism didn’t take. This is definitely a bad omen.
One more sign of “Happy Days Are Here Again” under Biden and his Masters.
I remember that movie with Darren McGavin in it over 40 years ago.
Soon to be followed by House repo’s.
Does this mean the rest of might finally get some decent proving on good used cars?
Other than a loan shark, who would be crazy enough to loan $ to the tune of 140% of the value of what is being financed?
[There is a silver lining in that the weaker economy the auto trouble both reflects and portends should cool inflation. But it might not be that simple, at least not right away. “A lot of the banks—they’re smart. They control the market, like diamonds,” Lopez says. “As repos pour in, they only release them so often,” he says, meaning auto prices will probably remain stubborn even as economic growth wanes and more repos mean more used-car inventory.]
Another issue for banks that wasn’t such a big deal before? Crime. Now that progressive DA’s have all but decriminalized theft, storing repos has likely become an expensive proposition. That means big time security measures that require more staff as repo inventory piles up. That’s inventory that, if held on to, will have to be offset by continued high used car pricing. Every single day it sits in storage is another chunk of cost they’re counting on being able to defray. That’s a huge gamble, and not sustainable in a market that is tottering, to say the least.
An article i read earlier said the average new car payment was $666
And many were well over 1k
That is some crazy s#it.
140% of the value of the car may be 80% of the price paid.
“Prosperity is just around the corner”
Lucky Lopez? Classic!
Building
Back
Better!!!
(An article i read earlier said the average new car payment was $666)
That seems..... about right
Our lease is expiring on our 2019 Jeep Cherokee. Only 25,000 miles on it due to Covid and working from home. We can buy it outright for $17,000, which we are doing. That price was in the terms of the lease at inception.
Right now the same vehicle with a lot more miles is selling for $35,000.
No repo for us.
Could be deflationary.
More repos = more supply of used cars
More supply of used cars lowers prices from covid levels
Banks might have ti take a little hit if they over booked the collateral, buy what the hey, the gummit was pumping trillions out the door to the banks to make loans
The bankers knew the risk profile before they made the loans
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