Car repossessions are on the rise in warning sign for the economy

[Hydrogen]

After auto repossessions tumbled during the pandemic, they are now approaching their pre-pandemic levels with industry analysts worried the trend will continue.

WASHINGTON — A growing number of consumers are falling behind on their car payments, a trend financial analysts fear will continue, in a sign of the strain soaring car prices and prolonged inflation are having on household budgets.

Repossessions tumbled at the start of the pandemic when Americans got a boost from stimulus checks and lenders were more willing to accommodate those behind on their payments. But in recent months, the number of people behind on their car payments has been approaching prepandemic levels, and for the lowest-income consumers, the rate of loan defaults is now exceeding where it was in 2019, according to data from ratings agency Fitch.

Industry analysts worry the trend is only going to continue into 2023 with economists expecting unemployment to rise, inflation to remain relatively high and household savings set to dwindle. At the same time, a growing number of consumers are having to stretch their budgets to afford a vehicle; the average monthly payment for a new car is up 26% since 2019 to $718 a month, and nearly one in six new car buyers is spending more than $1,000 a month on vehicles. Other costs associated with owning a car have also shot up, including insurance, gas and repairs.

“These repossessions are occurring on people who could afford that $500 or $600 a month payment two years ago, but now everything else in their life is more expensive,” said Ivan Drury, director of insights at car buying website Edmunds. “That’s where we’re starting to see the repossessions happen because it’s just everything else starting to pin you down.”

'Recipe for disaster'

For those in the repossession business, it’s been difficult to keep up. Jeremy Cross, the president of International Recovery Systems in Pennsylvania, said he can’t find enough repo men to meet the demand or space to hold all the cars his company has been tasked with repossessing. With the holidays approaching, he’s been particularly busy as people prioritize spending elsewhere, and he’s expecting business to keep up throughout next year and 2024.

“Right now, it’s really the perfect storm,” said Cross. “Over the last two years, vehicle prices were inflated because there was no new car supply, people were still buying like crazy because they had a lot of stay-at-home cash, they had inflated credit scores, so it was like a recipe for disaster.”

At the same time, the number of repossession companies has shrunk by 30% as many firms closed up shop and the workers found jobs in other industries when repossessions tumbled during 2020, Cross said. Now, he said, lenders are paying him premiums to repossess their cars first in anticipation of a continued increase in loan defaults.

“The volume is picking up, and the remaining companies that are still performing repossessions are very busy,” Cross said. “The overall numbers are still not prepandemic numbers, but we will see a big change coming in ‘23 and ‘24 that I think the lenders are starting to recognize because they are offering financial incentives that they never had to do in the past. They’re jockeying for position knowing that there’s only a certain amount of bandwidth available.”

It’s an issue that’s raised concern among officials at the Consumer Financial Protection Bureau, who say they are seeing troubling signs in the auto market, particularly among so-called subprime borrowers, who have below-average credit scores, and those with loans taken out in 2021 and 2022 when auto prices were particularly high.

“Loans taken out in those years are performing worse than prior years just because those consumers had to finance cars once the supply chains were jammed and the prices started to go up,” said Ryan Kelly, acting auto finance program manager for the CFPB. “Those consumers got hit with inflation twice. First, when they had to finance a car after the prices went up, and then when they had to put gas in the car after the Russia-Ukraine conflict started. So there’s just a lot of consumer stress.”

If the economy deteriorates as many economists are predicting in 2023, the number of those falling behind on their car payments should continue to rise, even as consumers tend to give priority to their car payment ahead of most bills because of the importance a car plays in getting to work or potentially providing shelter, industry analysts said.

Still, the rate of defaults and repossessions isn’t expected to reach 2008 and 2009 levels, when there was a spike caused by the financial crisis. The percentage of auto loans that were 30 days delinquent was at 2.2% in the third quarter compared with 2.35% delinquent over the same period in 2019, according to data from Experian. By contrast, just over 4% of auto loans went into default in 2009.

“We’re expecting it to continue to increase and maybe even breach prepandemic levels because of the macroeconomic headwinds of higher interest rates, higher cost of borrowing and expectations for unemployment to continue to increase,” said Margaret Rowe, the lead auto analyst at Fitch. “I think our expectation is that we’re going to continue to see it go up, but it’s just been so low that even going up isn’t like what we saw in the Great Financial Crisis.”

'A lot of stress'

Cox Automotive analysts forecast that while loan defaults and repossessions will increase from their pandemic lows, long-term through 2025 they predict overall defaults and repossessions will remain at or below historic norms.

Still, the financial squeeze has been particularly difficult for lower-income consumers looking for budget vehicles, which have been particularly hard to find. While in the past, those car buyers would have purchased a used car for $7,000 to $15,000 they are now having to spend $20,000 to $25,000 for the same type of vehicle. Among dealers that cater to subprime and deep subprime consumers, the average listing price on their cars has almost doubled since the beginning of the pandemic, according to the CFPB.

“That near prime and subprime group of consumers, they’re getting hit very, very hard by inflation. That group of people did not have much disposable income. They had to finance a more expensive car and then they got hit with prices going up overall. There’s just a lot of stress,” said Kelly.

Ally Financial, which has a significant share of loans to subprime borrowers, said in its October earnings report that it expects delinquencies to increase to as much as 3.8% compared with 3.1% in 2019.

Another risk to car buyers’ finances is the growing length of auto loans, many of which now exceed seven years. While those longer term loans can lower the monthly payments amid higher prices, consumers risk paying off the loan much more slowly than the car is depreciating, leaving them underwater if they need to sell the vehicle. It can also mean higher interest costs over the life of the loan on top of already inflated vehicle prices.

For consumers, there is unlikely to be any relief over the next year. Interest rates are expected to remain high for those needing to borrow to buy a vehicle, and Covid-related plant closures and material shortages are continuing to ripple through the car manufacturing supply chain, limiting the number of new vehicles.

“I dare think what happens to people who are signing up for new loans today,” said Drury. “It’s not going to be better when we see these payments so high.”

https://www.nbcnews.com/politics/economics/car-repossessions-are-rise-warning-sign-economy-rcna61916

....


The same negative trend also applies to housing loan markets.

While many contractual loans are failing at historically high rates. Could there be an eventual upside in terms of car and real estate assets becoming more affordable within the foreseeable future?

It has recently been acknowledged that used car prices are downtrending sharply at a record rate, (I think) in correlation with the elevated rate of failing car loans.

Used vehicle demand and prices continue to decline from record highs

• Wholesale prices of used vehicles reached their lowest level in more than a year last month, as retail sales decline amid interest rate hikes, rising new vehicle availability and recessionary fears.
• The Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined about 16% from record levels in January.
• The decline is good news for potential car buyers, however not great for companies such as Carvana that purchased vehicles at record highs and are now trying to sell them at a profit.

Cox Automotive said Wednesday that its Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined 15.6% from record levels in January through November. The index dropped to 199.4 last month, below 200 for the first time since August 2021, and is down 14.2% from the same month a year ago. It marks the sixth-consecutive month of declines.



Image link:  https://i.ibb.co/ky2F5mW/used-car-prices-2022.jpg

https://www.cnbc.com/2022/12/07/used-vehicle-demand-and-prices-continue-to-decline-from-record-highs.html

Perhaps we will likewise see real estate market values fall within a similar trend, which would make living space more affordable for many current full time employees who cannot afford it.

Unfortunately, there could be another trend in play here. Cars and living space might increasingly become deflationary in supply. It has been reported that US automakers are inching nearer to bankruptcy. Which could result in overall scarcity of car supply, if production and competition decline.

Similar trends could also apply to US real estate markets. Where influxes of immigration could contribute towards real estate and living space becoming increasingly scarce and limited in supply.

But in the short term, from the chart above we can see that used car prices are declining and perhaps that will correlate with long term market trends to make transportation and living space more affordable.

[1715332658]

1715332658

[1715332658]

1715332658

[avikz]

Car and housing markets are two very important indicators to understand the mode of the economy. Because these are two things that families own when they have some surplus money and a stable income source. So whenever there is a decline in car and housing demand and a rise in non performing assets, it's usually a very concerning matter for the economy. It shows that the income sources are drying out and new sources are not getting created. That also initiates a decline in demand of general consumer goods which eventually leads to more job cuts and income losses.

Probably the first world countries are moving towards a recession and the third world countries are going to be benefited out of it.

[hugeblack]

Isn't the crisis of electronic chips and charging the main reason for the price hike during the past year? I remember that most of the agencies were unable to provide model year cars even with the high prices and advance payment, which caused them great embarrassment, including the increase in the prices of the rest of the models for the past years.
In general, in the local market here, and without lending prices, car prices suffered from sharp fluctuations, and the problem of loans has added additional challenges.

[EarnOnVictor]

Car and housing markets are two very important indicators to understand the mode of the economy. Because these are two things that families own when they have some surplus money and a stable income source. So whenever there is a decline in car and housing demand and a rise in non performing assets, it's usually a very concerning matter for the economy. It shows that the income sources are drying out and new sources are not getting created. That also initiates a decline in demand of general consumer goods which eventually leads to more job cuts and income losses.

Probably the first world countries are moving towards a recession and the third world countries are going to be benefited out of it.

The most crucial factor to consider here is 'Inflation,' It's driving the economy insane, I only hope that its effect would not deprive people of their wants and comforts as it has already done.

When the price of everything is persistently rising, how could commoners be able to change their cars, house and valuables? This is practical in the sense that the purchasing power of their legal tender is shrinking, and this is happening in an environment where wages and salaries are not reviewed upwards. This is the time to be prudent and also look for extra ways of income to reduce the impact on ourselves and our loved ones.

[DrBeer]

This is a completely normal and expected reaction of the population to the time of crisis. there is a reset of assets weighing down wallets. Cars are not expensive, especially in the USA. It's just that not everyone was ready for such a situation both in the world and in the USA, and, accordingly, such loans became unacceptable, or difficult to service. In the end, you can cheaply buy a used inexpensive car, tinker with yourself for a while until the situation changes. The question is - it will grow to a scale that is not acceptable for the financial system and manufacturers. Not sure, especially in the US there has been a trend to reduce unemployment. Well, probably people will moderate their appetites a little - it is not necessary to have a premium car, you can buy more modestly

[Flexystar]

Perhaps we will likewise see real estate market values fall within a similar trend, which would make living space more affordable for many current full time employees who cannot afford it.

That's already happening and by the time we hit next financial year cycle that is after March 2023, many reforms will come from the giant governments around the world. The problem is China is failing itself from the COVID and this is what it happened back in 2020. We can not forget the mistakes that we done in 2020. What is surprising is the pandemic has just shown us the trailer of whole thing and it is yet to set us free from the worst.

1. We have on going fuel shortages
2. Winter is at our doorstep already
3. Economic crisis is blooming like it owns the stage!

&

4. COVID is coming to us to enjoy the Christmas.

I am sure instead of buying vehicles and real estates people will have to sell them to survive after a year or so.

[arwin100]

We add up the surging price of gas and other auto service related so maybe this could add the deciding factor of each auto user to surrender their cars to their dealership. Also we can't deny how hard the life especially we are dealing a high inflation at the moment.

Bicycle or other Electric operated vehicle are famous now maybe this will became the new trend since they can save paying expensive gas and they can also cause less pollution to the environment.

[dothebeats]

Isn't the crisis of electronic chips and charging the main reason for the price hike during the past year? I remember that most of the agencies were unable to provide model year cars even with the high prices and advance payment, which caused them great embarrassment, including the increase in the prices of the rest of the models for the past years.
In general, in the local market here, and without lending prices, car prices suffered from sharp fluctuations, and the problem of loans has added additional challenges.

I believe that is also what one of the agents in the dealership I went with told me regarding the reason why they don't have the 2022 variant of the car that I'm eyeing on. He said there were shortage in electronic chips, but not in manpower nor any other parts that the car needs in order to function. The delay was something like 9 or so months if I can remember correctly, and the vehicles they have in the showroom can't be purchased by cash, only through financing and bank loans which is, in itself absurd because if you do that option, the car's value will go up 200% compared to when you buy it directly with cash.

They also have a used car section and those prices are also unjustifiable given the age and miles put on those cars. There is a 2004 Camry that is still worth an absurd $7,000 clocking 89,000 miles that is on display on that dealership. The agent said that it was in mint condition and was always on time for the car's inspection and maintenance. That Camry is nice and all, but I don't think it's worth $7,000 tbh. Vehicle prices has been surging recently, and repossessions of these vehicles coming to a higher level may mean that people just haven't got enough money to cover for their mortgage/rent, food, and their cars, and has to let go of the latter because they can get by with public transportation.

[Nhazwrath]

Id like to interject that Cars are 99% liabilities while property and houses are not. 

so my op that the fact that cars are about to get repo'd is more of a balancing of the eco more then a large scale problem. 

[el kaka22]

You know what is the most interesting part of this? USA is one of the nations with lowest amount of money required compared to purchasing power to buy a car, Germany another. I mean you could be a kid working in McDonalds and get a run down car if you want to, it is quite possible.

In fact, you could do 4 hours of uber eats or regular uber everyday for 5 days a week, and you could cover the cost of getting a brand new car within 6 months. Which begs the question, do people think that they should be better off not paying the car debt? Or are they really not capable of paying it? I feel like it could be the first, because they could get another car easily, a second hand 80k mile car maybe, but easily.

[Gyfts]

Unfortunately, there could be another trend in play here. Cars and living space might increasingly become deflationary in supply. It has been reported that US automakers are inching nearer to bankruptcy. Which could result in overall scarcity of car supply, if production and competition decline.

Similar trends could also apply to US real estate markets. Where influxes of immigration could contribute towards real estate and living space becoming increasingly scarce and limited in supply.

But in the short term, from the chart above we can see that used car prices are declining and perhaps that will correlate with long term market trends to make transportation and living space more affordable.

I don't think the supply of cars is the issue. Average monthly car payments in the U.S. are something like 600 USD/month with used cars being significantly lower. People are opting in for new, unaffordable cars oppose to older used models. Short supply affected the used car market during COVID and the prices haven't come down, but it's not as if vehicles are all completely unaffordable. It's people that aren't making wise choices with their finances and taking on auto loans that they can't afford to pay if there's a sudden change in their economic situation. In which case, the auto industry isn't at fault. It's a problem with the consumers.

[Smartprofit]

Perhaps this is due to the development of the carsharing system?   It is now a very popular opinion that the future lies in the rental of property, and not in the ownership of property on the right of ownership.  

In any case, motorists have alternatives.  In addition to carsharing, they can use taxis, public transport, they can ride bicycles or walk.  

A car is a luxury.  

You can be a successful and productive person, but not own a car by right of ownership.

In any case, the lack of demand for cars from consumers will lead to a reduction in their sales from dealers and manufacturers.

[Kakmakr]

People should stop competing with the Jones's ..... and buy more affordable cars that are light on fuel. The global economy are being hammered..and people are suffering. I think companies are also letting people go... so they cannot continue making payments on their cars... and then repossessions are the only option.

I also had to down scale a bit to adapt to the changes in the economy, because the fuel prices killed my budget. Just sell those fuel hungry trucks and get some EV or something with a smaller engine. 

[tabas]

While many contractual loans are failing at historically high rates. Could there be an eventual upside in terms of car and real estate assets becoming more affordable within the foreseeable future?

I hope that we come back to that point. There's a domino impact to everything when even these two have started to fall and they become more affordable. While car depreciates, I'm more interested to the real estate part.
But to see that there are more car repossessions and people can no longer pay the mortgage that has been assigned to them upon availing those cars. If too much cars are in there, there's for sure the increase in supply and there's no way to go but to decrease the demand of it which will result in falling prices and making it more affordable.

[goaldigger]

Id like to interject that Cars are 99% liabilities while property and houses are not.  

so my op that the fact that cars are about to get repo'd is more of a balancing of the eco more then a large scale problem.  

Cars can be used for your businesses, and that is not a liability for me.
There’s a lot of defaulted loans since the pandemic started until now, and its expected that it will continue to increase because many are still suffering financially. Many economies sees their recovery in the next three years so probably we might see good improvements by next year but the trend for a repo cars might not be changed, it will continue to increase as well.

[Nhazwrath]

Id like to interject that Cars are 99% liabilities while property and houses are not.  

so my op that the fact that cars are about to get repo'd is more of a balancing of the eco more then a large scale problem.  

Cars can be used for your businesses, and that is not a liability for me.
There’s a lot of defaulted loans since the pandemic started until now, and its expected that it will continue to increase because many are still suffering financially. Many economies sees their recovery in the next three years so probably we might see good improvements by next year but the trend for a repo cars might not be changed, it will continue to increase as well.

You are correct that a car can be a asset instead of a liability.  But only for a limited time and then it turns back in to a liability due to wear and tear and usually fairly quickly compared to most other assets.

Still not worried about car repos.   and I will explain my opinion a bit.   

So a car still exists after its repod can be resold.   

Business Systems which relies on a semi non-existent idea that has yet to be produced goes Poof in to the aether where is came from if it goes bankrupt, most of that is lost.  Usually only the physical property is recovered if there was any to begin with. 

So in the first case you have a item recovered.   

In the second case you recover nothing.  and only lawyers make money =>

[xSkylarx]

Id like to interject that Cars are 99% liabilities while property and houses are not.  

so my op that the fact that cars are about to get repo'd is more of a balancing of the eco more then a large scale problem.  

Cars can be used for your businesses, and that is not a liability for me.
There’s a lot of defaulted loans since the pandemic started until now, and its expected that it will continue to increase because many are still suffering financially. Many economies sees their recovery in the next three years so probably we might see good improvements by next year but the trend for a repo cars might not be changed, it will continue to increase as well.

Mostly, it is really used for business purposes, or other commuters will buy cars so that they can save time and fare. Here in our country, motorcycles are known to be affordable, so mostly those who are working far away usually buy or borrow money from the bank to buy motorcycles, as they are spending more on the fare than when they bought a motorcycle they could save. But still, there are other people (mostly rich) who use it for their daily things that they need to go to, but mostly, a car or motorcycle is not a liability as we need it for our source of income.

[Darker45]

This was somehow expected during the pandemic. With jobs lost, businesses closed, and with people's movements limited to the minimum, it isn't surprising if a lot have lost sources of income. But I thought this was only rampant to my country and other developing countries, after all it isn't unbelievable for a homeless in the US to own a car.

So far, however, there is already an aggressive comeback here as far as car sales are concerned. Even though the used car market has abundant new supplies due to the repossessions in the past year or two, the growth rate of the sale of brand new cars is hitting almost 50% within the year. That's an amazing figure. It's really a quick recovery as far as the car industry is concerned, and that's despite of the steep increase in fuel.

[adaseb]

Been in the market for a vehicle and they aren’t any cheaper. If anything they are at the highest they have ever been, especially in my area. Cars from 2017-2021 used are selling at MSRP. Yes take a car from 2017 with like 50k miles and it’s selling maybe $1k below MSRP when it was new.

Sure the wholesale is lower and repos are up but that is not happening in the retail market. Or even on Craigslist or Facebook marketplace. Everything is overpriced and most are just keeping their current vehicles.

[DrBeer]

I believe that is also what one of the agents in the dealership I went with told me regarding the reason why they don't have the 2022 variant of the car that I'm eyeing on. He said there were a shortage in electronic chips, but not in manpower nor any other parts that the car needs in order to function. The delay was something like 9 or so months if I can remember correctly, and the vehicles they have in the showroom can't be purchased by cash, only through financing and bank loans which is, in itself absurd because if you do that option, the car's value will go up 200% compared to when you buy it directly with cash.

They also have a used car section and those prices are also unjustifiable given the age and miles put on those cars. There is a 2004 Camry that is still worth an absurd $7,000 clocking 89,000 miles that is on display on that dealership. The agent said that it was in mint condition and was always on time for the car's inspection and maintenance. That Camry is nice and all, but I don't think it's worth $7,000 tbh. Vehicle prices has been surging recently, and repossessions of these vehicles coming to a higher level may mean that people just haven't got enough money to cover for their mortgage/rent, food, and their cars, and has to let go of the latter because they can get by with public transportation.

I'm sorry, but if it's not a secret - in which country does buying a car on lease or on credit give a 200% rise in price
Even we, with not the most stable economy, do not have such rates! If there is such a thing - it's some kind of wild nonsense!
And if it is not in the national currency, it is generally complete nonsense.
With us, with a 5-year installment plan for a car, when buying a new car in the salon, the rate, depending on the nuances, can be from 5 to 11% per YEAR. At the same time, there are preferential programs, deferrals, lower interest rates, for example, with a down payment of more than 20% ...