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.
Car Repos Are Exploding. That’s a Bad Omen.
Weird, I was getting my 2019 KIA Soul serviced Friday morning and of course one of the salesmen tried to get me to sell it to the dealership.....The offer was 2K under what I paid for it new.
I noticed that there wasn't hardly any KIAs on the lot (no Souls) and asked why and he said they are sold when the truck arrives and that most of the used vehicles were bank repos.
LOL.....They had more used Jeeps on the lot than KIAs. I noticed that their sales staff had been pared way back too.
Tough times for stimulus/unemployment ballers and child tax credit playas that paid 140% above MSRP I guess.
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.
Car Repos Are Exploding. That’s a Bad Omen.
Weird, I was getting my 2019 KIA Soul serviced Friday morning and of course one of the salesmen tried to get me to sell it to the dealership.....The offer was 2K under what I paid for it new.
I noticed that there wasn't hardly any KIAs on the lot (no Souls) and asked why and he said they are sold when the truck arrives and that most of the used vehicles were bank repos.
LOL.....They had more used Jeeps on the lot than KIAs. I noticed that their sales staff had been pared way back too.
Tough times for stimulus/unemployment ballers and child tax credit playas that paid 140% above MSRP I guess.
