Interesting car market piece

[pwd72s]

fall in line with Tabs forecasts..

https://www.zerohedge.com/markets/perfect-storm-arrives-massive-wave-car-reposessions-and-loan-defaults-trigger-auto-market

(edit) A cut and paste from the article:

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*ck 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.

What does this mean in simple terms: well, besides the imminent devastation across the auto sector, including a surge in defaults and car repossessions, we are about to witness a historic collapse in car prices. In fact, in a subsequent tweet, the CarDealershipGuy noted the plunge in prices at troubled used-car dealer Carvana which will be the first domino to fall and be forced to liquidate much if not all of its inventory to stay afloat:

[aschen]

Car prices are way down in the last 2 months or so and they will undoubtedly continue to fall.

Read that dealer inventories are depreciating at 1% per WEEK on used cars recently. Carvana is hosed and many dealers will be in trouble.

Anecdote: internet is full of 981 gt4s listed for 110k but they go for low to mid 80s on bring a trailer. A lot of optimistic sellers these days livin in 2022

[RANDY P]

That's what you get for financing an overpriced vehicle with a huge 2nd sticker.

rjp

[GothingNC]

Yup, very optimistic, LOL

[GothingNC]

[L8Brakr]

Should be a positive force in bringing down the inflation rate.

[rockfan4]

I want to go look at a used pickup Monday. Cargurus says it's $2322 under market value. Think I can do better? Wait? I don't really need a different truck, but I've been looking for a good year now.

Originally Posted by pwd72s

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...

So there will just be thousands of abandoned cars sitting around, waiting for the repo man? Seems unbelievable, but then I've seen my stepdaughter and her husband's car buying skills, and I believe it.

[Noah930]

Originally Posted by aschen

Car prices are way down in the last 2 months or so and they will undoubtedly continue to fall.

Read that dealer inventories are depreciating at 1% per WEEK on used cars recently. Carvana is hosed and many dealers will be in trouble.

Anecdote: internet is full of 981 gt4s listed for 110k but they go for low to mid 80s on bring a trailer. A lot of optimistic sellers these days livin in 2022

As a potential consumer, I'm glad (selfishly) that car prices are coming down, though I see hiw that's not necessarily good for the overall economy. At the same time, I'm still seeing newish Porsches for sale for far more than their sticker prices. Granted there's a difference between asking price and actual selling price. But all day long I see people trying to unload their low-mile 911s for $20-50K over sticker. So this news is definitely surprising to me.

[Heel n Toe]

...many people simply had no choice and bought an overpriced car.

BS... there is always a choice. If one buys above what they can afford, it's not the fault of the car market.

Too many people say, "I need a new car," when actually what they need is a different car. "New" is overrated and some people are unwilling to buy used because it will cause a hit on their self esteem.

Basically, they owe banks more on these cars than they are worth.

Doesn't this happen quite often when one is making payments on a car... especially one that was purchased new?

Does a flashing light and buzzer go off on the dash the day the numbers change? So it's time to panic?

No, if you're making payments on time, you keep making them and you keep driving it until it's paid for. Then you keep driving it and sock away the amount of the payment until you can afford to make a move into a different car.

What is wrong with people?

[HobieMarty]

So....I guess if you wanted to sell a car it would be a good time to do that before the prices plummet into the abyss and/or if you are in the market for a new one and can afford it, not upside down in a loan, then it's best to wait a little longer and see if the values/prices plummet as well.

Well, I'm good, heck, I daily drive a 22 year old Lexus RX, I definitely am not one to go out and buy a new vehicle.

(Insert green font), Dang, I wish I hadn't financed the car for 30 years, but it's almost mine!!!

Sent from my SM-N950U using Tapatalk

[hbueno]

Sorry, but zerohedge is crap. Is there a more reputable source?

[Captain Ahab Jr]

Just a result of people living today but will pay for it tomorrow

Looks like tomorrow has arrived

Too much buying on credit and not enough of the old fashioned saving up before buying

[rfuerst911sc]

I think most of us are not surprised, the highly over inflated car prices had to end sometime . I don't think we will see a 50% drop but a significant drop is coming . The shell game of buy now pay later always has risk .

For many reasons too many people don't see the value of having cash on hand . The keeping up with the Joneses mentality vs common sense and living within your means . Credit is just so easy to obtain but the discipline to use it wisely is not ☹️ .

[Captain Ahab Jr]

It will also be everyone else's fault but their own too

I've wanted to buy a newish truck for a couple of years now,

It's a want not a need so happy to wait it out and let history repeat itself (again)

[LWJ]

Not sure about cars, but the Dirtbike market (discretionary) has really softened.

And then there is Carvanna.

Markets move.

[Sooner or later]

Carvanna's problems are far deeper than just declining used car prices.

[expatriot98]

People who bought homes during the stupid times are hurt a lot worse. This was all pre-written.

[Ayles]

Not sure I feel too bad for people that overpaid. I recently purchased a 2023 4 Runner. It took quite a bit of patience and shopping. But I refused to do business with dealers charging over msrp.

[flatbutt]

Hmmm I wonder if this will transfer into the MC market?

[Arizona_928]

I hope the prices adjust to 2010 because I'm still looking for a roller and refuse to pay 10k for a clapped out shell.