Authored by Mike Shedlock via MishTalk.com,

Now is one of the worst times ever to buy a car. Wait six months or a year and things will be different.

Image from Wolf Street via Tweet thread below

Auto Loan Bubble About to Burst

A pair of excellent Tweet threads explain what is happening with car prices and pending repossessions.  

Graham Stephan Tweet Thread

• The auto industry collapse has just begun and this would be one of the worst times for you to buy a vehicle. In a normal market (pre-2020), Auto Loan delinquencies hovered at 2 to 3%. Today that number is exploding with nearly 1 in every 4 loans in default in Washington DC

• The key issue that caused this is how Auto Loans are issued. Currently, Americans owe more than $1.2 Trillion on auto loans (the highest in US history and a 75% increase from 2009). Given the fact that more than 85% of cars are financed, we are looking at a massive problem. [Lead chart from Wolf Street via Graham Stephan]

• I did some digging and found out that over the last 10 years, car dealerships have begun making more profits from the financing of cars rather than the car sales themselves. Translating from auto sale to loan sale business has resulted in a loosely regulated grey market.

• This was possible because dealerships successfully lobbied to have less oversight – meaning that there is no federal oversight with auto loans unlike Mortgages, student loans, and credit cards. Reduced oversight allowed them to lend money without proper background checks.

• An investigation in late 2021 found that up to 50% of the loans were given to customers who might not be able to afford them. The income and employment verification only happened 4 percent of the time. All of this means that more and more customers are starting to default.

• The best-performing state is Utah with 4.5% of loans in default whereas other areas are much worse. California – 8.7%, Texas – 10%, Washington, DC – 23%. Once payment is more than 90 days late, the lender can repossess your car.

Now let’s look at a Tweet Thread from Doug DeMuro. He makes YouTube car videos and runs @CarsAndBids.

Used Car Price Crash is Coming

A used car price crash is coming. 

And that will not bode well for the new car market either, especially with the Fed hiking like mad. 

Finally, think about this in terms of retail sales as well as new car manufacturing. 

Unleaded Gasoline Futures Declined 26 Percent, Has Inflation Peaked This Economic Cycle?

Yesterday, I asked Unleaded Gasoline Futures Declined 26 Percent, Has Inflation Peaked This Economic Cycle?

It’s safe to add used car prices to the list of price collapses.

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