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

barrons ^ | July 8, 2022 | By Lisa Beilfuss

[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.

[Zhang Fei]

[In Texas, creditors can’t stockpile repoed cars. The financier does not own the repoed car, but merely has a security interest that allows them to take possession of the car and sell it in a commercially reasonable manner.

Are there states where the financier just keeps the car, and has good title to it? In the absence of a commercially reasonable sale, I do not see how it may be determined if the buyer still owes the financier, because the car is worth less than the loan balance, or if the financier owes the buyer, because the car was worth more than the loan balance and cost of repo. (It happens — but not often.) ]

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Thanks for the tip. I get the impression the guy the Journal interviewed may have misunderstood the nature of the obligations between the banks and the borrowers to whom they extended the car loans.

[Zhang Fei]

[or worse. the loan is so long the car will never make it to the end. I had someone trying to trade a car with a 7 year loan on it. it was 3 years old with 295,000 miles on it. “I have to uber to pay bills!” ya, well, GLWT cuz your 3 year old car is used up and I can’t help you. the car failed ubers rather easy inspection. basically everything was shot.

I never suggest letting the bank have it, but I did mention he better bank some cash because when it dies and is unrepairable cash is the only way he’s buying the next one.]

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Out of curiosity, what were the most obvious problems with the car?

[MHGinTN]

Thanks so much. Very informative.

[Vaduz]

Biden’s green plan in action.

[NautiNurse]

But there was another kid at the car wash that had also bought a fancy car, so I’m guessing he thought it was the thing to do too.

Old adage: Never buy a better car than your boss's vehicle.

[central_va]

Some fast food businesses are folding because they can’t find anyone who will work for the wages being offered new employees.

Fixed it.

[freedomlover]

“Car Repos are Exploding”

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The life of a repo man is always intense . . .

[cableguymn]

Oil consumption (blue smoke) blad tires soft suspension and every warning light was on.

[Zhang Fei]

[Oil consumption (blue smoke) blad tires soft suspension and every warning light was on.]

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I’m getting the impression that the owner treated it like crap. The bald tires are a dead giveaway. Still, to make it to 300K with all these lights on - that suggests a quality car treated badly. Used to be you were lucky get to 100K without needing to junk it.

[cableguymn]

I have a bank that does 600 down any score over 450.

You don’t want to know the rate but they will do it.

[cableguymn]

I suspect he let it go about 40-50k before it turned up at my lot.

[minnesota_bound]

You can get a car cheap from this man....
https://www.imdb.com/title/tt0081698/mediaviewer/rm3386093569?ref_=ttmi_mi_all_sf_37

[laplata]

Lol. That guy could put you inyo a lemon in no time.

[laplata]

Lol. That guy could put you inyo a lemon in no time.

[laplata]

This guy will give you a deal on a paint job.

https://www.youtube.com/watch?v=Auvf7DDw5z0