Tag: used car prices

Number Of Americans In Upside-Down Auto Loans Continues To Worsen

Via ZeroHedge

Consumers face increasing financial difficulties due to elevated inflation, a generational high in interest rates, maxed-out credit cards, lack of personal savings, and two years of negative real wage growth amid the mounting failures of ‘Bidenomics.’ The latest distress is that the number of Americans in upside-down auto loans has reached the highest level since 2020.

According to automotive research firm Edmunds.com, the number of Americans with auto loans “underwater” or “negative equity” in November reached an average of $6,054, the highest level since April 2020.

Source: Bloomberg

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Affordable, Again . . . If You Can Afford Them

Guest Post by Eric Peters

Now is a good time to buy a used car – or soon will be, again. A house, too. Both for the same reason: Rising interest rates are making it more difficult to buy these things. Demand softens, prices lower. Sellers have the choice: Take less or get nothing.

The catch is, you’ve got to be able to afford to buy. 

Increasingly, many can’t.

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No inflation? Even used car prices are soaring

Guest Post by Simon Black

We’ve reached a point now where anyone who can’t see inflation is clearly not paying attention.

Inflation has now become so ridiculous that, according to the Wall Street Journal, even the price of a USED car is increasing… by a lot.

Since January 2020, NEW car prices have increased 9.6%. But USED car prices are up 16.7% over the same period.

This is pretty extraordinary given that used cars are supposed to depreciate. According to one used car dealer, “What is normally a depreciable asset has been appreciating. It’s certainly surreal. . .”

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Soaring Used-Car Prices “Push Americans Over The Edge” As Subprime Delinquencies Surge

Via ZeroHedge

Millions of Americans are finding it virtually impossible to keep up with their car payments, despite supposed “economic growth” and low unemployment, according to Reuters. In fact, more than 7 million Americans are already late by 90 days or more on their car loans, according to data from the New York Federal Reserve, as delinquency rates among borrowers with low credit scores have seen the fastest acceleration.

Part of the issue stems from the economic downturn a decade ago where automakers slashed production. This has made a rarity of 10-year-old used vehicles, which are typically the cars sought out by low-wage earners.

This lack of supply and rising demand has caused prices to spike, with the average price of a 10-year-old used vehicle coming in at $8,657, nearly 75% higher than 2010, which is “pushing poor Americans over the edge” according to Reuters. Over the same time, the average increase in new car prices is only 25%.

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Pumping up a Leaking Tire

Guest Post by Eric Peters

Every kid knows what happens when you try pumping up a leaking tire. As soon as you stop pumping air into it, the tire begins to go flat.

New car sales have been working that way for the past couple of years – with effectively free (zero or little to no interest) loans extended over the horizon – and leases counted as sales – serving as the “air” in the tire.

We’ve been told that business is great.

In fact, it’s as rickety as a Jenga tower.

What’s happening in the used car market is a portent. Prices are collapsing – chiefly because of historically unprecedented depreciation. During the past twelve months, the average used car lost 17 percent of its value. This is almost twice the annual average depreciation rate just three years ago. It smacks of the post-2005 collapse of housing prices.

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Morgan Stanley: Used Car Prices May Crash 50%

Tyler Durden's picture
by Tyler Durden
Mar 31, 2017 12:32 PM

For months we’ve been talking about the massive lending bubble propping up the U.S. auto market.  Now, noting many of the same concerns that we’ve highlighted repeatedly, Morgan Stanley’s auto team, led by Adam Jonas, has just issued a report detailing why they think used car prices could crash by up to 50% over the next 4-5 years. 

Here’s the summary (flood of supply, poor lending standards and desperate OEMs who need to keep new car sales elevated at all costs):

  • Off-lease supply: This has already more than doubled since 2012 and is set to rise another 25% over the next 2 years.
  • Extended credit terms: Auto loans are at record lengths and lease assumptions (residuals, money factor) are at record levels of accommodation.
  • Rising rates: Starting from record low levels in auto loans.
  • Overdependency on auto ABS: The outstanding balance of auto securitizations has surpassed last cycle’s peak.
  • Record high deep subprime participation: 32% of subprime auto ABS deals were deep subprime (weighted average FICO < 550) in 2016 vs. 5% in 2010.

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Ally Financial Slashes Guidance As Used Car Prices Suffer “Worst Decline In 20 Years”

I think this may be the first canary in the coal mine. The entire auto sales recovery has been driven by easy money, subprime debt, and leases based on pie in the sky assumptions. Loaning money to people incapable of paying you back for $40,000 Cadillacs makes your numbers look good in the short term. Now the debt is going bad at rates last seen in 2008. Remember 2008?

The tidal wave of repo vehicles and vehicles being returned after their 3 year leases are up are driving the prices of used cars down. This is creating a snowball effect as more vehicles come off lease. The residual value calculations are wrong.

Banks, financing companies, and the automakers are all going to get hit with loans losses, leasing losses, and automakers are being forced to discount new vehicles dramatically. Profits are going to get hammered, production lines will be shut down, and workers will be laid off.

The canary is dead. I wonder what happens to all those subprime derivatives being sold to pension plans.

Tyler Durden's picture
by Tyler Durden
Mar 21, 2017 9:50 PM

For those of you holding out hope that the North American auto market is anything but a massive debt-fueled bubble on the verge of imminent collapse, you may want to avert your eyes now.  For the rest of us who prefer to live in reality, as painful as it can be, today’s FY2017 earnings warning from Ally Financial offers a stinging wakeup call to auto investors.

And while Ally’s CEO, Chris Hanley, tried to downplay the company’s 2017 earnings guidance cut to “5% – 15%” on today’s call by saying that it was “generally in line with a 15% EPS growth path that we previously described to analysts and investors,” the market didn’t buy it. 

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