Posted on 12/16/2022 12:31:24 PM PST by Drew68
This morning I discovered something *extremely* alarming happening in the car market, specifically in auto lending.
I'm now convinced that there is a massive wave of car repossessions coming in 2023.
Here's what I discovered (and what no one knows):
Background:
Over the past 2 years, many people took out exorbitant loans on cars.
Car values were inflated (and frankly, still are to some extent).
But many people simply had no choice and bought an overpriced a car.
Well...
Car valuations are now plummeting.
Some cars have declined in value as much as 30% y/y.
And these same people that took out these big loans are now "underwater".
Basically, they owe banks more on these cars than they are worth.
And the banks are well-aware of this...
But there is no easy solution.
You can't just put the genie back in the bottle.
This brings me to what happened this morning:
Every Friday I conduct a team meeting to recap our week.
This morning, one of our General Managers opened up DealerTrack — a portal that dealers use to communicate with auto lenders — and highlighted something very concerning:
9 of our lending partners have started WAIVING "open auto stipulations" for consumers.
Wait, wtf does that even mean?
Let me explain using a simple, hypothetical scenario:
1) Consumer takes out an auto loan in 2020/2021 on an overvalued car
2) 2022 comes around and that overvalued car is now rapidly declining in value
3) With the car declining in value, consumer now owes more on the car than it is worth
4) Consumer no longer wants the car. Maybe they outgrew it. Or maybe it keeps breaking. So consumer wants to trade it in.
5) But dealer can't trade the car in because the consumer owes WAY too much on it.
So dealer asks consumer for lots of money down to cover the difference.
6) But of course, the consumer doesn't have $1,000s to cover the difference between what they owe on the car and what it's worth.
And here comes the perfect storm...
7)
Dealer can't sell consumer a car,
Consumer can't buy a car,
And, you guessed it, lender can't finance a car!
Everybody loses! Oh no
So what happens next?
8) Lender knows that most consumers are stuck in this situation, and does the following:
WAIVES THE OPEN AUTO STIPULATION.
Meaning, the lender lets the consumer buy the car KNOWING that they already have an open auto loan with another bank!
Why the f*** would they do this?
Surely the lender knows that consumers that take out a 2nd auto loan are MUCH riskier and have a MUCH high risk of default? Right?
RIGHT?
Yes, but the lender does it because they know that the consumer will default on the other car !!!!
Dog eat dog style.
Let me be clear:
This is NOT normal.
But it's the only way lenders can finance cars and dealers can put cars on the road.
And the implications of this will be tons of repossessions.
I've been a doubter, but after what I saw this morning, I'm now FULLY convinced that a wave of car repossessions will hit in early/mid 2023.
If lenders are willing to backstab each other in order to put more loans on the road, we're in trouble.
This will not end pretty.
That's all for now.
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I was browsing cars last night on craigslist. The prices were higher than my first house. Trucks, vans, Jeeps 10 years old were still going for $50k
I don’t do repossession but I work with many companies that do (towing/junk cars)
It’s already here. One has leased my self loading wrecker to try and keep up with incoming repos. I get a % of what they bill. That truck is making alot of money.
One said it’s a name your own price game.
After all, what’s to lose?
That debt is still collectable. It eventually ends up in a court room either by the original creditor (capital one rarely sells their bad paper and activity tries to collect) and you’ll end up with a judgement and garnishment unless you are good at attacking the chain of custody on the debt.
I had to go to my local Ford dealer to get a dealer only part.
Saw a ‘23 F-150 with a 2.7 liter engine.
$57,000.
No way.
I am bookkeeper for an equipment rental business and the car hauling trailers stay booked.
Re-po bounty men.
I don’t get it. Are they saying the dealer takes the older car as a trade in even though the owner is still making payments on it? I don’t think so.
Absolutely. As long as it’s worth more than is owed or the bank is willing to allow the negative to be rolled in to the new car.
I just did a deal. Pay off was 6100. Trade value to me was 6250.. they got 150 dollars of credit on the new car. They bought the new car and I paid off their loan and the bank will send the release to me.
Happens all the time.
But when they owe so much the lender on the new car is unwilling to put the negative on the new loan the buyer is screwed
Well, we taxpayers should just buy cars for all those poor studies majors that already have debt
Perhaps it’s time to look at cars. I have a lexus SUV that is 22 years old and has had a lifetime of a bit of desert abuse but still runs fine but maybe time to update if they are cheap. I also have a toyota landcruise that is 57 years old and has been beaten bloody in the desert for decades but is still beautiful and a freakin’ warhorse. The latter will have to be removed from my cold dead fingers, however.
Lenders love it when a borrower is upside down on a loan. The just roll the payoff amount into the new/next car loan and make even more money.
And the Covid lie showed the manufacturers that they can keep dealer inventory low so they get the highest price per vehicle possible.
I don’t think we’ll ever see a full lot again.
I do hope this guy is correct though. I need to purchase a used vehicle for my soon to be 16 year old. Well I’ve got 6 months so still a bit.
Look at how expensive it is to own a truck...!
These are gas powered. Imagine the bill for electric powered F-150’s!
Over One Third Of Ford F-150 Owners Have $1,000+ Monthly Bill
https://fordauthority.com/2022/10/over-one-third-of-ford-f-150-owners-have-1000-monthly-bill/
How does that differ from all other previous years? That always happens the moment the front tires leave the dealer lot pavement and hit the street.
No, they're selling a new car to a person who is underwater on their current vehicle, knowing full well the current car has an existing loan and will be allowed to go back to the bank. In other words, the customer will have two car loan payments, but will default on the loan for his original vehicle. The dealer can't take the current vehicle as a trade-in because the customer is so far underwater that there is no way to roll what is owed on the old car into the loan for the new car.
I’m one of the winners in this game. I sold an almost seven year old Jeep for $4800 less than I paid for it almost seven years ago. I sold an almost six year old pickup truck for $3822 less than I paid for it almost six years ago. I then bought a new car at MSRP, which isn’t much more than I would have paid for it if it were a buyers market. So I’m happy. Somebody got themselves a nice Jeep and a nice pickup, but I’m sure they paid through the nose for it.
1. Look at the narrative for Item (7) … Dealer can't sell consumer a car, Consumer can't buy a car, And, you guessed it, lender can't finance a car! Everybody loses! … Well, no. In the scenario presented there, the consumer already has a car. He just can’t trade it in under those circumstances because he owes more than it’s worth. The dealer already sold the car. The lender is still financing it. Nobody loses.
2. If the consumer in this case REALLY wants to trade in the old car, he will always be able to find a dealer who can make it happen. Suppose he owes $30,000 on a car that’s only worth $20,000. He does NOT have to come up with $10,000 cash to trade it in. A dealer will give him $30,000 for the car on a trade-in, pay off the loan, and add the $10,000 to the price of the new car to make up for the gap between the two values. The consumer will end up taking out a $60,000 loan for a $50,000 car, and will pay a higher interest rate as a “penalty” for the risk to the new lender who is extending a loan that is already underwater.
is someone is under water on a car loan
just have the car stolen
(this is why I am waiting until summer 2023 to buy a used car)
I have thought about selling my two cats now to wait for that.
just have the car stolen
Something most everyone has thought about. And the more sober minds among us understand the many felony charges that getting caught doing this could incur.
I had happily forgotten those times
The $3000 beaters I buy and fix up for my grandkids went to $5000 so this will be a welcome development.
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