SouthAustinAgSwag said:

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https://www.foxbusiness.com/personal-finance/auto-loans-surge-past-student-debt

I have heard this talked about at length in personal finance spaces. Car debt is now more than student loan debt. When you couple higher car prices (due to supply chain issues) with historically high interest rates (at least over the past 20 years or so), it's not surprising that car loan default rates are also the highest they have ever been.

I have heard Graham Stephan talk about this and how it could lead to a crash in used car prices since repossessions will inevitably go way up as well, resulting in a glut of used cars on the market.

I have two cars - one with 150k and another with 218k. Both cars have been fully paid for since I owned them and are very reliable. I'll upgrade them at some point and would love to do so when used car prices come down a bit more. Is anyone else in the same mindset as I am?

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Where are you getting this information?

Not denying that this isn't an up and coming issue, but not sure the bolded is true.

YCharts: US Auto Loans Delinquent by 90 days or more

Current: 3.91% (September data)
But it was over 5% in 2019 & 2020

Even in the article you linked they said it's the highest since 1994 (behind by 60 days or more). Again, not saying its a good thing, but also not "the highest they have ever been."

And the fox business article references this link: Cox Automotive: Auto Market Weekly Summary Which states this about delinquency

Quote:

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Auto loan performance was mixed with delinquencies up but defaults down.

Auto loan performance was mixed in September as delinquencies increased but defaults declined. Loans delinquent for 60 days or more increased for the fifth month in a row and were up 13.3% from a year ago.

In September, 1.89% of auto loans were severely delinquent. That was up from August's 1.85% rate and was the highest September rate dating back to at least 2006. 7.38% of subprime loans were severely delinquent. That was an increase for the month from 7.17% in August and was the highest rate for any month dating back to at least 2006.

The subprime severe delinquency rate was 72 basis points higher than a year ago, while the aggregate was 16 BPs higher. The delinquency rate has been high all year but has not been leading to a similarly high level of defaults, and defaults declined in September after increasing in August.

Defaults of auto loans declined by 9.8% in total in September from August but were up 31.7% from a year ago. Defaults of subprime auto loans declined by 11% but were up 18% from last year.

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As far as crashing used car prices? Maybe, but one thing to remember is most of these rates are subprime borrowers. Prime borrowers still have a default rate of like .25%. Yes, we all know irresponsible people who are subprime borrowers but still buying $50k cars. But I do wonder what the actual makeup of year, shape, condition, etc. of these vehicles in the subprime category is.

Obviously a recession and large numbers of job losses would greatly impact all of this more than anything.

Interesting perspective, and it makes sense that prime borrowers wouldn't be contributing to this and thus newer vehicles would likely have a much lower repossession rate.

I will confess that I have never bought a new car (and don't plan to, although that could change based on market conditions and price) so my main area of focus would be used cars.

clickbait bs.

As htxag mentioned, these doom & gloom reports have been out there for over a year now.

Diggity said:

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also, there's a difference between auto prices coming down and the auto financing market imploding.

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They might or might not be linked. But prices are a direct reflection of a combination of supply, demand, and available financing. An increase of supply, decrease of demand, increase in the cost of financing, or decrease in the availability of financing would all have downward pressure on prices individually and together.

With one of those inputs, cost of financing, being magnitudes higher than just a couple years ago, all it will take is one snag in the rest to bring prices down. This is an industry hanging on a thread - that thread being the backlog of demand from the COVID shutdown and subsequent supply squeeze. Higher net worth and prime credit score borrowers make up over 2/3 of demand right now and they are doing it with longer terms and higher borrowed amounts. It's just not sustainable. Without a drop in the cost of financing, prices will come down barring another massive supply squeeze.

Diggity said:

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why do I feel like I'm conversing with ChatGPT here?

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Not sure. You just seemed to gloss over my main point, that all assets have been fueled by fake cash and easy access to cheap debt. Those days are gone. And pricing will soon reflect it. I think we mostly agree.

higher cost of borrowing will lower people's ability to pay for cars, but....

we're still in a market where unemployment is low, and (nearly all) cars are paid for with fixed debt.

What is this black swan event that's occurring to cause everyone to default on their loans?