Home » This Is The Worst Auto Loan To Hold As Delinquencies Rise

This Is The Worst Auto Loan To Hold As Delinquencies Rise

Tmd Toyota Sequoia
ADVERTISEMENT

New and used vehicle affordability has improved over the last few months, but there’s still a slow motion lending crisis in the United States, with auto loan delinquencies reaching a record high. In particular, economic conditions have seriously impacted people who made loans or took out loans during the pandemic.

Also this morning, we’ll talk a little about the impact the strike will have on other companies, Toyota’s plan to win the EV war, and Volvo’s plan to cut out all diesels in the next year.

Vidframe Min Top
Vidframe Min Bottom

The Conundrum Of Buying A Car In The Pandemic

Mirai Ohio Carfax

I’ll continue to talk a lot about vehicle affordability in this space because, as I see it, it’s one of the three key automotive stories of the next three years (along with labor and the transition to electrification). The car market between early 2020 and late 2022 was simultaneously impacted by: government spending that gave money to consumers, vehicle scarcity caused by production issues, high prices caused by that scarcity, and lower-than-normal interest rates followed by quickly rising rates.

This means that, because fewer cars were sold during the pandemic, those cars were generally more expensive. Additionally, buyers with pandemic cash and access to historically low interest rates meant we continued to see a ballooning of car payment terms out to 72 and even 84 months. The pandemic period was also a field day for predatory lenders who knew that there was money to be made, even with loans that would inevitably default. And then, to top it all off, inflation hit and the Federal Reserve started raising interest rates.

ADVERTISEMENT

There’s new data out from Cox Automotive pointing to historic delinquency rates:

Auto loan performance deteriorated in August as delinquencies and defaults both increased. Sixty-plus day delinquencies increased for the fourth month in a row in August; the subprime loan delinquency in August was the highest for the month dating back to at least 2006.

A delinquent loan is one that hasn’t been paid on time — a default is when the bank determines the loan isn’t going to be repaid. This distinction is important, and I’ll get to that in a second.

First, though, another term: vintage. The vintage of a loan, like the vintage of a wine, refers to a specific time a loan was made (e.g. Q1 2021 is a loan made in Q1 of 2021 — quite straightforward), and there are institutions that track these vintages. One of those institutions is Standard & Poor’s, which puts out a regular report on the auto loan market. No surprise, the worst vintage right now? Subprime loans made in 2022.

What’s going on? From S&P (CNL stands for Cumulative Net Loss, FYI), here’s why:

We expected subprime CNLs to rise from the unsustainably low levels on the 2019-2021 vintages, but rather unexpectedly (given low unemployment levels), the 2022 vintage is reporting worse-than-historical loss levels with 2.60% in CNL as of month seven compared to 1.99% for 2008 and 2.02% for 2016 at the same month (see chart 9). The deterioration started with the 2022 second-quarter cohort. At month 13, its CNLs are 6.03%, which exceeds the 5.73% for 2008 and 5.21% and 5.28% for 2016 and 2017, respectively, at the same month. The subsequent 2022 quarterly vintages are also showing deterioration relative to historical levels, but not to the same extent. Higher CNLs have been due to greater defaults (chart 11), a precipitous drop in recoveries (chart 12), and, in our opinion, either a liberalization of credit standards among some lenders and/or the inability of their underwriting methods to account for pandemic-related “inflated” credit bureau scores.

This makes sense. If you had to buy a car in 2022, you were hit by the double whammy of super high prices and interest rates that were suddenly climbing. If you’re one of these borrowers you probably didn’t benefit from a super low interest rate, you paid at the top of the market, and the value of your car has now dropped as depreciation returns.

ADVERTISEMENT

Should we all panic?

“If anything, the market is normalizing in key metrics like defaults and repossessions, and we’re not even back to 2019 levels in those activities,” said Cox Automotive chief economist Jonathan Smoke on the Car Dealership Guy Podcast.

It’s true, and he goes on to add that the default rate (i.e. the loans that the bank assumes aren’t getting paid back) is not rising to the same historical level. But the news isn’t rosy for everyone. The New York Federal Reserve Bank tracks automobile loans by vintage in granular detail, including by age:

Screen Shot 2023 09 19 At 9.55.29 Am

Before Autopian commenter rootwrym yells at me, you can see here how, for younger buyers especially, there’s been a long period of time where the affordability of vehicles, predatory financing, and other conditions have resulted in an unfriendly market only made worse by the pandemic.

ADVERTISEMENT

There’s a huge opening, I think, for an automaker that can address this market.

Toyota Is Going To Toyota Its Way To Electric Cars

Toyota Ev Concepts 1 1560182440

Toyota did not sell the first hybrid in America. It was Honda, with the Insight. Toyota is nothing if not a great fast-follower, a company that sees what others are doing and manages to swoop in and use its expertise to win market share (think iPhone and Blackberry) and did so with the Prius.

Never bet against Toyota, is my point, because the entire world copied their lean production methods and its insight into what people want is historically very good. Of course, electrification has long been the area where Toyota, as a brand, has been slow to follow. Not anymore, says Toyota! If the company can combine its historical trust, lean production model, and some new gigaasting to EVs, perhaps it can catch up with Tesla?

That’s the premise of this Reuters report:

ADVERTISEMENT

Toyota revolutionised modern manufacturing with its system of lean production, just-in-time delivery and “kanban” workflow organisation. Its methods have since been adopted everywhere from hospitals to software firms and studied widely in business schools and boardrooms around the world.

The relentless focus on continuous improvement and squeezing costs helped fuel Toyota’s ascent from post-war upstart to global giant. But in battery EVs, it has been eclipsed by another tireless innovator, Tesla, which has used efficiencies of its own to build market-leading profitability.

Under new CEO Koji Sato, Toyota in June announced an ambitious plan to ramp up battery EVs, a big shift after years of criticism that the maker of the industry-leading hybrid Prius was slow to embrace fully electric technology.

I mean, if anyone can do it…

Volvo Will Kill All Diesels Next Year

Phev Volvo S60 Recharge 2

It’s been clear for a while that the first internal combustion engine to disappear in passenger cars isn’t going to be a V8, it’s going to be a diesel. Swedish automaker Volvo is making a big deal out of killing diesels with an announcement today:

By 2030 we plan to sell only fully electric cars and by 2040 we aim to be a climate-neutral company. That clear roadmap towards all-out electrification represents one of the most ambitious transformation plans of any legacy car maker.

To underline our commitment to those ambitions, today at Climate Week NYC we announce the end of production of all diesel-powered Volvo Car models by early 2024. In a few months from now, the last diesel-powered Volvo car will have been built, making Volvo Cars one of the first legacy car makers to take this step.

This milestone follows our decision last year to exit the development of new combustion engines. In November 2022 we sold our stake in Aurobay, the joint venture company that harboured all of our remaining combustion engine assets. We’re no longer spending a single krona of our R&D budget on developing new internal combustion engines.

RIP Volvo diesels.

A UAW Story About Suppliers

Screen Shot 2023 08 28 At 8.34.00 Am
Photo: UAW

With Ford now facing a strike in the United States and Canada and everyone struggling to predict the future, The Detroit Free Press is out with a story about how this might impact suppliers:

ADVERTISEMENT

Pat Green is nervous. He has spent the past two years trying to hire talented people to fill the two plants in Grand Rapids operated by Cascade Die Casting Group, which makes aluminum and zinc diecasting for the automotive and appliance industries.

“We’ve got a good team now and I don’t want to lose people because it was hard to find good people,” Green, who is CEO of the company, told the Detroit Free Press on Monday.

That’s why on the fourth day of a historic United Auto Workers strike against the Detroit Three automakers, Green was intensely planning for ways to ride it out without having to lay off workers if the strike grows and stretches into weeks. He has good reason for planning. On Monday night UAW President Shawn Fain announced a new strike deadline of this Friday at noon. If Ford Motor Co., General Motors or Stellantis have not made substantial progress toward an agreement with the UAW by that time, Fain will expand the Stand Up Strike to more plants.

It’s a serious concern since these plants exist as part of a vast network of companies in these communities and the labor market, to Pat Green’s credit (not that Pat Green), is fairly constrained. At the same time, rising wages in a community tend to give workers more bargaining power.

The Big Question

Ok rootwrym et al., are we in for more huge disruptions or is this a bad set of loans that need to work themselves through the system?

Popular Stories

Share on facebook
Facebook
Share on whatsapp
WhatsApp
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Subscribe
Notify of
109 Comments
Inline Feedbacks
View all comments
M K
M K
8 months ago

Whoever figures out the cell phone model for cars (Walmart or Dollar General) is going to clean up with the low end of the market. Imagine for a moment what that would look like…You walk into a store with several of the latest models…all have pretty similar features, but maybe one has more range or is a bit nicer or has better color choices. Doesn’t matter, just comes down to a monthly bill. That bill includes the car, recharging, maintenance, insurance, etc. The price can vary widely depending on how much you drive, but the point is a basic car, low range, and low monthly milage should be affordable to almost anyone. One level below that starts with used vehicles. Either way you’re locked in for 3 years or so, after that you can keep driving the car at the used car rate or upgrade to latest model. The base price just steps down as the vehicle ages. Don’t pay your bill, car doesn’t work (except for emergency mode). Need extra range, either pay extra ahead of time or pay a little more for extra miles after you exceed. Really low on cash? For the bottom plan you get the rolling billboard, radio that only plays ads and enough range to get to work. Seems crazy, but I think this is where the bottom of the market is headed…Would also solve the uninsured epidemic.

Data
Data
8 months ago
Reply to  M K

This was an episode of Black Mirror.

Matthew Hogan
Matthew Hogan
8 months ago
Reply to  M K

I agree with your premise, but I do not see it actually working, though I wish it could. Manufacturers who have played with subscriptions have targetted the upper-middle range and generally not been profitable. I frankly do not understand all of why, but reportedly the biggest aspect of this is insurance. Rates vary dramatically geographically and at a basic class level. With insurance rates tied to credit scores and generally decreasing credit scores, on top of targeting the bottom of the market, the potential to lose money is simply too great for even Wal-Mart to take a stab at this.

M K
M K
8 months ago
Reply to  Matthew Hogan

I’ve always liked the idea of bundling in the price of basic liability insurance into the gas tax. Makes the amount you pay proportional to how much you drive and how big of a vehicle you pilot. With the switch to EV’s that starts to fall apart, but you could do it with a large scale subscription model. I do agree with the insurance issues with “sub-prime” drivers, but on some level we already subsidize rates through the uninsured motorist premium added to our bills.

Bongo Friendee Harvey Park
Bongo Friendee Harvey Park
8 months ago
Reply to  M K

Isn’t that called a lease

M K
M K
8 months ago

I’ve never had a lease, but don’t you still need to bring your own insurance and are still on the hook for wear items?

Andy Individual
Andy Individual
8 months ago

Loans are only one part of the problem. I know someone who drives a F150 (turbo-6). He puts a lot of miles on it for his business, and does need to occasionally haul larger items for work. I often tease him for his wastefulness. Thing is, he showed me his expenses last year. He’s in his late 40’s with a perfect driving record. His annual insurance is higher than his gas and regular maintenance costs combined. This is at Canada gas prices. Nuts.

I fear for an uptick in uninsured and under insured vehicles on the roads. Not good for the rest of us.

Stef Schrader
Stef Schrader
8 months ago

Dang it, you beat me to it with the “not that Pat Green.”

Anyway, here’s the Pat Green song that paints our terrible garbage hell freeway in far too positive a light. Clearly, this was written before everything between Killeen and Hillsboro was a giant construction zone full of even worse drivers. https://youtu.be/Zmz9JMRnkoc

Last edited 8 months ago by Stef Schrader
NebraskaStig
NebraskaStig
8 months ago
Reply to  Stef Schrader

Hahaha I-35 is a garbage interstate up North too!

3WiperB
3WiperB
8 months ago

The educational system and parents need do a better job to make kids understand interest rates and how loans work. Everyone needs to learn to look at the total cost of a loan and how to do these calculations.

My last used car purchase, the dealership tried to sell me a total of an additional $33,000 in extended warranties and maintenance plans. Let me say that number again… $33,000. This was over 75% of the price of the car. But it wasn’t ever shown as that number, or even as a total monthly add of $550 for 60 months, it’s attempted to be sold as a series of smaller monthly payment adds. I had to do the math quickly in my head or on my phone. It was an easy no for me, but you just know people end up buying this crap. I took my 19 year old with me so he could see the games that are played. I had my financing in place from my credit union, an agreed price before I walked in the door, and had done my budgeting to know what I could afford. We had a long discussion later about the process, and I think he understood things a lot better.

I also walk in knowing that their goal is to try to extract as much money from me as they can, and it’s all they do, all day long. The customer is always in a situation where they negotiate a car purchase less than 1 time a year, and are up against experts that have a system that works most of the time.

We live in an era of great resources. There’s a ton of good YouTube videos on how to negotiate for a car and how car loans work. Or if you aren’t comfortable doing that, you might be better off hiring a broker to buy a car for you.

The system sucks, but education can help you get a better deal than most.

Last edited 8 months ago by 3WiperB
Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  3WiperB

I remember having to do a work sheet of some sort before I signed up for student loans. This needs to be done earlier, and the kids have to be shown the impact of length and interest rates. Hell, teach them all Excel and give everyone a couple of templates they could use in their own lives.

Manuel Verissimo
Manuel Verissimo
8 months ago
Reply to  Vetatur Fumare

I did that, and came up with a decent approximation as the interest amount you pay is roughly decreasing linearly over time.

Take the credit amount, multiply by the interest rate (that gives your first year interest), divide by two (average yearly interest), multiply by years (total interests over loan time).

I’ve used this several times and it works like a peach for a (not so) rough estimate.

Last edited 8 months ago by Manuel Verissimo
Alex W
Alex W
8 months ago

“Gigacasting” shall henceforth be referred to as “gigaasting”, or maybe “gigasting”. I don’t know, I don’t write for a living.

Drew
Drew
8 months ago
Reply to  Alex W

GigaSting is already the name for a giant mechanical version of a well-known musician. GigaAssSting is what happens when you sit on a wasp nest.

Andy Individual
Andy Individual
8 months ago
Reply to  Drew

This debate is becoming a Quagmire.

Geoffrey Reuther
Geoffrey Reuther
8 months ago
Reply to  Drew

Or cross paths with a murder hornet in the outhouse.

Drew
Drew
8 months ago

are we in for more huge disruptions or is this a bad set of loans that need to work themselves through the system?

If, as appears to be happening, the normalization of car prices coincides with increases in interest rates, we’re going to see rough roads ahead. Shoppers aren’t necessarily financially savvy (especially those most likely to default on loans), and what research they have done may already be outdated when they buy.

Combine that with aggressive sales tactics, rolling one underwater loan into another, and the need for a vehicle, and we’re in for some more bad loans for a bit, probably. This will hit in waves. Wave 1 defaults without refinancing or trading into another bad loan. Wave 2 refinanced, but end up still unable to keep up and default a little later. Wave 3 traded in on something that was a better deal, but went in underwater and end up still defaulting. Scattered throughout are the ones who end up even worse-off trying to use payday loans to stay afloat.

All of those waves will still need transportation, so they’ll go to the sleazy lots that will still sell to them.

It’s going to be really bad for the people affected. The knock-on effects won’t be simple, but they won’t be massive. Junkers might be easier to sell, but not worth more. Buy-here-pay-here lots will buy them to rope someone into a high-interest loan, but they won’t want too high a price to start. Some desperate people will scrounge the cash, but they won’t be able to scrounge enough to drive up prices.

Fewer new buyers won’t really drive down prices, because manufacturers already want to make more money on fewer cars. You might see more lease deals if lightly used vehicle values stay higher. But it’ll mostly be business as usual for most of the market, I’d guess.

Ryan L
Ryan L
8 months ago
Reply to  Drew

I suspect as the price of cars and insuring them becomes more untenable and more people utilize some sort of flexible remote work hybrid you’ll see consumers in warmer climates shift from 2 car households to 1+ with an ebike.

Thevenin
Thevenin
8 months ago

US auto loan debt is $1.56t. In 2008, housing debt was $10.5t ($15.3t in 2023 dollars). The risk of auto loan defaults (by themselves) causing a financial disruption comparable to 2008 is pretty minor.

I do think the auto industry is in for some soul-searching, though. With rising delinquencies comes falling confidence, and with high interest rates, fewer and fewer can actually make payments for the average $48.3k car.

In other words, the luxury market is shrinking, and the auto industry’s overcommitment to “every car is a luxury car” could easily backfire.

Ben
Ben
8 months ago
Reply to  Thevenin

Also, even that large housing debt number wouldn’t have collapsed the global economy on its own. The problem was the banks leveraged the mortgage market to the point where that 10.5 trillion had a 200 trillion dollar impact on the market. I suppose the same thing could have happened with auto loans, but I haven’t seen any evidence of that and it doesn’t make sense – auto loans are not considered as bulletproof as mortgages (used to be, anyway).

Slow Joe Crow
Slow Joe Crow
8 months ago
Reply to  Ben

Auto loans also get bundled into securities and probably derivatives all of which have the potential to make small crater, although Evergrande filing bankruptcy is a much bigger ripple ATM

RootWyrm
RootWyrm
8 months ago

Before Autopian commenter rootwrym yells at me, you can see here how, for younger buyers especially, there’s been a long period of time where the affordability of vehicles, predatory financing, and other conditions have resulted in an unfriendly market only made worse by the pandemic.

There’s a huge opening, I think, for an automaker that can address this market.

Too tired to yell. Plus you put it a lot more succinctly than I would have.

But this part goes back to the other day when I pointed out where all the manufacturer incentive money is going – lowering interest rates. (Refresher: typical prime borrowers are getting socked with 8%+ – that’s PRIME – and subprime into the 20%’s.)
But even with all that, Hyundai’s only able to afford to get down to 4.19% on a few models, most are at 6.19% promotional. And Hyundai’s financing arm is rather healthy compared with the market at large.

See, that’s the thing about interest rates and promotions like that. In terms of ‘cash money’, the difference between 9% and 4.19% for 60 on a $35k car with $5k down is $4061 ($7365 vs $3304.) But to offer a promotional rate like that when the Fed won’t put down the foot-shooting GAU-8 costs a lot more than that. Because they have to hedge against the Fed jacking another 100 basis points next meeting.
Because if you’re holding $250M in well performing loans at 4.19%, and everyone else has $250M bundles at 9%+? You’re basically fucked. Because as collateral, those loans even with a 0.2% delinquency rate, are now worthless. Because in late-stage capitalism, it’s a zero-sum game. Especially after a decade plus of completely unrealistic interest rates, winner-takes-all monopolizing, and explosive growth in rent-seeking because the idea of ‘infinite expansion’ was always stupid.

There’s really almost nothing manufacturers can do against this.

It’s been clear for a while that the first internal combustion engine to disappear in passenger cars isn’t going to be a V8, it’s going to be a diesel. Swedish automaker Volvo is making a big deal out of killing diesels with an announcement today:

<yawn>
This is peak greenwashing bullshit. What actual percentage of Volvos sold are diesels? Even in the EU, I guarantee you, it’s very few. The allure of diesel to consumers (cheaper fuel with better gas mileage) has been gone for years. Diesel costs more than regular in virtually all of Europe. The gas mileage for a DI is comparable and sometimes better. And even the most modern diesels are not as smooth and quiet, nor as powerful.

Diesel sales in EU went from 42% to just 25% of new car sales between 2015 and 2019. And no, it wasn’t diesels going to BEVs.Or Dieselgate.

So big deal. They’re killing something that made up a single digit percentage of their sales and as such is a fraction of a fraction of their total emissions.

Ok rootwrym et al., are we in for more huge disruptions or is this a bad set of loans that need to work themselves through the system?

This is not a ‘put on your car prognostication hat’ question; this is a ‘put on your banking sector hat’ question. And the outlook could only be described as ‘dismal’ if we’re using very generous values of dismal.
Understand, this is not an “American” problem. Globalization! Because why fuck up one continent when you can fuck up all of them? Couple this with late-stage winner-takes-all rent-seeking being the ‘growth’ engine, state actors (CHINA) openly manipulating markets, and everything else?

Nice house of cards you’ve got there. Shame if a slight headwind came along.

And there’s a lot of shenanigans which are going on that people here may not be aware of, since they’re not car related. (Which, fair. This is the car site. Not the Financial Times.) For example, just a few of them…

  • The Chinese government seized Evergrande Insurance (yes, that one) and yesterday arrested everyone associated with and working for Evergrande Wealth Management and seized all of those assets
  • Brexit, to the surprise of nobody with more than 2 functioning brain cells, continues to cause the UK to implode both economically and increasingly politically
  • The US’ low unemployment is being proven as the facade it is; children of full-time employed parents are literally starving. Code-worded things like ‘food insecurity’ continue to climb. People having to spend over 30% of their income just for a roof continues to skyrocket.
  • Winner-take-all zero-sum capitalism is drastically increasing risks and instabilities for governments.
  • Extremists espousing quite literal Nazi views are being allowed to run rampant, destabilizing not only governments but economies. (Businesses and money likes stability. Not children trying to break anything they find.)
  • And people across the world are fed up with being told to just take it, and the only responses from the moneyed class have been turning the screws or outright violence.

The smart money at this point, is not on small bumps or gradual correction. There is too much justified anger, which business has no choice but to stoke (good job, social media and fake news,) the ‘infinite growth’ paradigm Keynesian economics is fully dependent on is imploding faster under the weight of oligarchs, and so on.
It’s a feedback loop; the same feedback loop that sees delinquent auto loans turn into inescapable permanent poverty.

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  RootWyrm

For a moment I had been hoping that the UK committing collective suicide out of spite (ie, Brexit) would provide the kind of lesson that would end Trumpism. Haven’t seen any signs yet, sadly.

Tyler
Tyler
8 months ago
Reply to  Vetatur Fumare

You’re assuming that Trumpers are aware of what people in other countries are doing.

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  Tyler

Good point. They were all rather chuffed about Brexit earlier, but I guess right-wing media stopped reporting on it once the repercussions started becoming clear.

SNL-LOL Jr
SNL-LOL Jr
8 months ago
Reply to  Tyler

Trumpers don’t care about people who don’t speak English.

SonOfLP500
SonOfLP500
8 months ago
Reply to  Vetatur Fumare

6 years later, and Jonathan Pie still has the last word on Trump’s election and Brexit:
https://youtu.be/GLG9g7BcjKs?si=vLk3v9M8cT62ozgU

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  SonOfLP500

Thank you. I was going to continue this thread in a political vein, but I think it’s okay to stick to sports for now.

Parsko
Parsko
8 months ago
Reply to  RootWyrm

TLDR;

The bubble is about to burst, folks.

RootWyrm
RootWyrm
8 months ago
Reply to  Parsko

One way of putting it, but we’re so far past even the Gilded Age and Standard Oil fuckery? Gods only know what’s actually going to happen or when.

But hey, great, yet another “unprecedented, once in a lifetime” event notch in everyone’s belts.

Taargus Taargus
Taargus Taargus
8 months ago
Reply to  RootWyrm

SAME AS IT EVER WAS *David Byrne zoot suit shoulder shrug*

Loudog
Loudog
8 months ago
Reply to  RootWyrm

This is what happens when you effectively shut down the world economy and then pump huge amounts of printed cash into it unevenly. Fun.

Drew
Drew
8 months ago
Reply to  RootWyrm

This is peak greenwashing bullshit. What actual percentage of Volvos sold are diesels?

We’re going to see more of this, too. Companies are going to kill off unpopular engines and models, replace them with EVs or hybrids, and pretend it’s about caring what happens to something other than the bottom line. Meanwhile, the accountants are watching to see which segments’ buyers are most likely to value efficiency or have environmental concerns, because they are going to try to maximize profits.

See also: Ford replacing the Escape with some as-yet-unknown EV because the Bronco Sport is the new Escape.

I also expect them to start crowing about the overall efficiency of their models as soon as they find a way to finesse those numbers into a discernable advantage.

Last edited 8 months ago by Drew
Alexi Antoniou
Alexi Antoniou
8 months ago
Reply to  RootWyrm

I’m basically here for you takes. Thanks.

10MM Socket
10MM Socket
8 months ago
Reply to  RootWyrm

Let’s get this guy a fucking Puppers.

SuperNova
SuperNova
8 months ago

I’m still convinced that the whole point is that in the near future…you will no longer own cars. We are looking at large companies seeking constant revenue streams. As a result we are being fed electric cars and government subsidizations to counter climate change and explosive increases in price followed by a youthful population who are drawn to the immediate satisfaction of the subscription based purchase. The result will be simple. Can’t afford your weekly subscription? The car can drive itself out of your laneway and park itself in a secure lot. Can’t go to work? Work from home. Not enough money? Here, have this universal income and remain a have not. We can see you don’t really do much anyways based on what your phone is telling us…Let’s see how correct my prediction becomes…I’m betting everything on it.

Mike B
Mike B
8 months ago
Reply to  SuperNova

You’ll own nothing and be happy.

Data
Data
8 months ago
Reply to  SuperNova

Everything is a subscription these days.
You previously bought music on Vinyl, cassette, or CD. Now you subscribe to a streaming service.
You previously bought movies on VHS, DVD, Blu-Ray, etc. Now you subscribe to a streaming service (or three).
You previously bought software and could use it forever. I still use Office 2007 at home because I have scant need for it. Now software is a subscription service (O365 at work).

For the record, I still buy my movies on disc (Blu-Ray of UHD unless it is only available on DVD). Then I don’t need to know which streamer has the movie I want to watch or discover nobody is currently offering it.

Cool Dave
Cool Dave
8 months ago
Reply to  Data

I still buy vinyl, CDs and DVDs. I even still use an older iPod, not just my phone!

Ryan L
Ryan L
8 months ago
Reply to  SuperNova

Many parts of the world you could buy a bike and get by just fine.

Heck I live in Minnesota and I have an elderly couple that live a few houses down – neither have ever had a drivers license. FWIW they mostly walk. They have a two car garage which they barter for services to another neighbor who parks his F150 in there and he and his wife use two Ford Fiestas as their daily drivers.

Stig's Cousin
Stig's Cousin
8 months ago

Regarding the rise in loan delinquencies/defaults, I don’t see why that would improve. The problem is we have normalized long-term $1,000+ car payments to buy unnecessarily expensive vehicles. We justify these by blaming pandemics, supply chains, interest rates, inflation, corporate greed, and other things, but most of these are excuses. Realistically, a buyer should have no trouble meeting their transportation needs with at most a $25,000 vehicle. Anything beyond that is a luxury purchase. I don’t have sympathy for buyers who struggle to make payments on their Tesla or F150 King Ranch.

With that being said, it would be interesting to see delinquency/default data by purchase price of the vehicle. It would be good to get a better idea of who is genuinely struggling and who is making bad decisions. Although, based on the prices people are paying for new and used vehicles, I suspect the problem here has more to do with poor decision making than external factors forcing buyers into more expensive vehicles.

I know this will be an unpopular opinion here, but buyers need to take responsibility for their own finances.

Strangek
Strangek
8 months ago
Reply to  Stig's Cousin

It’s not as simple at looking at purchase price though, you need to understand the person’s earnings in relation to the purchase price. $25k would be a “bad decision” for a lot of people.

Stig's Cousin
Stig's Cousin
8 months ago
Reply to  Strangek

I completely agree that $25k is a bad decision for a lot of buyers. However, a lot of the narrative around affordability focuses on middle class buyers taking on long-term loans to buy $60,000 cars. If you can get a loan for a $60,000 car, you should be buying a $25,000 car instead. If someone is willing to loan you money for a $60,000 car, you can almost certainly afford a $25,000 car.

Again, though, I am aware that there are buyers who genuinely struggle to afford basic transportation. It just seems like stories about affordability always focus on middle class buyers who are choosing to buy expensive vehicles when a cheaper vehicle, or keeping their own vehicle longer, is an option.

That is part of the reason I would like to see delinquency/default data reported by purchase price of the vehicle.

Last edited 8 months ago by Stig's Cousin
EmotionalSupportBMW
EmotionalSupportBMW
8 months ago

Young person, who knows some young people who are about to default on some Hyundais. Between the cost of living crisis. The wealth of youth being siphoned for the old guard. And, what is probably not discussed enough, the removal of skills in younger person by design to keep their wages down. In further detail, I’m in my 30’s, I don’t know a single person who isn’t working in the automotive sector or racing who knows how to a.) how to fix a car b.) can do it at home. So, buying a cheap shitbox is seen as a risk for either expensive repairs or long periods of downtime. Thus, people get into long loan terms viewing it as a requirement to get to work to pay their rent they can’t afford.

Ultimately, being viewed as requirement means it must continue till a better option is found. Being that the better options currently offer less extractions of limited capital, we won’t be doing those. So, defaults will happen, and we’ll just ignore those, and let the S.S Unsustainable keep steaming along!

Space
Space
8 months ago

Well said it is sad that hands on skills aren’t taught/prioritized. I learned all my automotive skills from my father & working on my 1st shitbox. By the time I was in high school the shop, auto and home ec classes had all been removed. If a kid doesn’t have attentive parents nobody is there to teach them.

Data
Data
8 months ago

My Google-Fu says the Prius was introduced in 1997 and went on sale in the US in 2001. The Honda Insight was introduced in 1999.

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  Data

Yeah, the Prius was only second to the Insight in reaching the US market.
Daihatsu had hybrid car prototypes in the 1970s; I reckon that’s how Toyota gained access to this tech.

Gubbin
Gubbin
8 months ago

As long as the job boom continues and rents don’t rise much more, people will grit their teeth and keep making payments. Though if the used car market opens up, a person could scrape up the money to pay cash for a crapcan, dump their upside-down car at the dealer and declare bankruptcy. A wave of that would put more and more cheap used cars on the market and reinforce itself.

Now I’m imagining a lending circle combined with a auto-repair mutual support network to facilitate the process…

Cheap Bastard
Cheap Bastard
8 months ago

“Never bet against Toyota, is my point, because the entire world copied their lean production methods and its insight…

(I see what you did there.)

…into what people want is historically very good”

So about that hydrogen thing…

Last edited 8 months ago by Cheap Bastard
Frankencamry
Frankencamry
8 months ago
Reply to  Cheap Bastard

The likelihood of a hydrogen future hasn’t meaningfully changed. Toyota is required to listen to its shareholders as well.

Cheap Bastard
Cheap Bastard
8 months ago
Reply to  Frankencamry

Hydrogen has always been “the future” and always will be.

Mike Harrell
Mike Harrell
8 months ago

“Toyota did not sell the first hybrid in America. It was Honda, with the Insight.”

The Owen Magnetic and the Woods Dual Power both came to market in the US in 1915, a bit earlier than Honda.

Chronometric
Chronometric
8 months ago
Reply to  Mike Harrell

My understanding of the Owen Magnetic car is that it used a magnetically coupled transmission, basically as an automatic transmission. All the drive is from the internal combustion engine. There is no contribution of force from an electrical component in the drivetrain. So despite Wiki and Jay Leno calling it a hybrid, it is not the same as our modern definition.

Mike Harrell
Mike Harrell
8 months ago
Reply to  Chronometric

The Owen Magnetic’s electric motor can be driven either by the car’s internal-combustion engine or by its battery pack, making it a series hybrid in the modern sense:

https://www.hemmings.com/stories/article/owen-magnetic-transmission

Paul B
Paul B
8 months ago

Up here in Canada, BMO is pulling out of auto loans, citing high default rates.

https://www.cbc.ca/news/business/bmo-auto-loans-1.6969951

One thing to note, BMO is a huge bank that can, and has, weathered bad times. Their net profit per quarter are in the billions.

RootWyrm
RootWyrm
8 months ago
Reply to  Paul B

Of far greater note is that BMO is not simply pulling out of subprime loans; they’re pulling out of auto loans period.
Which is especially abnormal because the fact is that repo rates are so high that banks are offering bonuses to repo firms to come work for them. Because all those cars they’re repoing? They’re not just selling at auction. They’re usually profitable at auction (meaning selling for more than is outstanding on the loan.)

SNL-LOL Jr
SNL-LOL Jr
8 months ago
Reply to  RootWyrm

It’s Montreal. When the cars get repoed people will just steal them back.

V10omous
V10omous
8 months ago

in our opinion, either a liberalization of credit standards among some lenders and/or the inability of their underwriting methods to account for pandemic-related “inflated” credit bureau scores.

This seems like a pretty big factor that wasn’t touched on much.

Rates and prices both rising have predictable effects, but I hadn’t really considered how things like eviction moratoriums, student loan pauses, and stimmies might have affected repayment rates and credit scores during the pandemic. If a bunch of people who really “shouldn’t” get loans qualified for them in 2022, it wouldn’t be shocking to see them default, but I also wouldn’t consider that a crisis.

Ultimately, as long as unemployment stays low, I think the downside risk of auto defaults is pretty capped.

V10omous
V10omous
8 months ago
Reply to  V10omous

Also, good riddance to passenger car diesel engines.

Before I actually owned one, I was as big a diesel guy as your typical online enthusiast. It doesn’t take many expensive repairs to change that attitude.

Sensual Bugling Elk
Sensual Bugling Elk
8 months ago
Reply to  V10omous

I can understand brown (fun colors!). I can understand manual transmissions (engagement!). I can understand wagons (utility and sportiness!)

But I’ve never found the justification for the internet peanut gallery’s diesel fetish. If you want diesel torque delivery, a low-pressure turbo on a gas engine will give you that. If you want diesel fuel efficiency and torque delivery, hybrids provide that along with lower total cost of ownership.

BolognaBurrito
BolognaBurrito
8 months ago

Your statement assumes that low-pressure turbo gas engines and hybrids were viable alternatives all the time. Just 10 years ago, what hybrid options did you have that were engaging and fun to drive? What turbo options had low-end torque? Get out of here with your revisionist history.

V10omous
V10omous
8 months ago
Reply to  BolognaBurrito

What diesel cars are fun to drive?

Yeah, flogging an economy car out to a 4500 RPM redline really gets my juices flowing…..

Mike Harrell
Mike Harrell
8 months ago
Reply to  V10omous

I’ve raced a diesel-swapped Porsche, making it simultaneously the only diesel car and the only Porsche I’ve ever driven. It was fun!

https://www.murileemartin.com/UG/LAZ18/0589-_MG_1336.jpg

BolognaBurrito
BolognaBurrito
8 months ago
Reply to  V10omous

What’s more fun to drive: A TDI Golf Sportwagen with a manual or a same year Prius? The only hybrid vehicle that even remotely approached “fun”–until very recently–was a Honda CRZ, but it was still slower than something like a TDI Golf, was no more affordable, was no more efficient, and was certainly a bit worse to drive.

The easy answer is 335d though.

Last edited 8 months ago by BolognaBurrito
V10omous
V10omous
8 months ago
Reply to  BolognaBurrito

I don’t consider either of those particularly fun to drive, especially when the VW will leave you stranded on the side of the road at some point (mine certainly did).

BolognaBurrito
BolognaBurrito
8 months ago
Reply to  V10omous

I had a ’15 GSW TDI that left me stranded once. I don’t want to praise that vehicle too much, as clearly part of it being fun and getting great fuel economy was because it cheated emissions, but I loved it.

You can’t tell me that a ’15 Prius would be remotely as fun to drive, or that any similarly priced gas alternative would be as torquey, or…

I’m not denying that they had problems, but people are acting like the hybrid choices of today existed just 10 years ago, or that there was a plethora of gas burners that got decent gas mileage while also having more than 120 hp. It simply wasn’t the case back then, and it was even worse 10 years before that.

J Hyman
J Hyman
8 months ago
Reply to  BolognaBurrito

Wait, why the constant thing about 10 years ago? What’s that got to do with new cars you can buy today?

JumboG
JumboG
8 months ago
Reply to  BolognaBurrito

I bought a C-Max Hybrid, I actually find it fun and zippy around town, and one of the reasons I chose it over the Prius is it has a 2 second faster 0-60 time. Another reason was because no one has heard of them I was able to get one 5 years newer and with 100k fewer miles than a Prius of the same price.

Chronometric
Chronometric
8 months ago
Reply to  V10omous

I reserved a manual BMW 3 series in Stuttgart to drive up to the Nurburgring. Upon picking up the car I was crestfallen when it turned out to be an Audi A4 diesel. Others were sold out so I went with it. After a few laps pinging off the pitiful 4500 RPM redline, there were ugly vapors rising from the engine bay and the tires were chunked. I got my money’s worth. After that, diesels are dead to me.

Mike B
Mike B
8 months ago
Reply to  BolognaBurrito

Thoe old Volvo 2.5T 5cyl has great low end. The one in my 07 XC70 was rated at 208hp/236ft lbs. Torque peak was at 2K rpm, on grades that my 4.0 V6 4Runner needs one or two downshifts, the Volvo just pulls in top gear without even noticing it.

Sensual Bugling Elk
Sensual Bugling Elk
8 months ago
Reply to  BolognaBurrito

“What turbo options had low-end torque?”

Saab was happy to sell you a gas engine with diesel torque and sports car cred starting in 1985. Plenty of VAG products too. I’ll admit that there have never been lots of fun to drive hybrid options. There haven’t been fun diesel options either though. Not that the market has been screaming for either of those, as Honda found out with the CR-Z.

BolognaBurrito
BolognaBurrito
8 months ago

You’re like two decades beyond when I was really talking about (late ’90s to the mid ’10s). Anyways:

I’m a huge Saab fan (owned two) but you aren’t making the argument you think you are…

1985 Saab 900 turbo had a MSRP of $18,150 ($51,790 today) and got roughly 20mpg overall. Way more expensive than most diesel offerings (Cadillac excluding) of the era, and well below the fuel economy.

A Golf TDI had a fraction of the MSRP, and offered more than twice the fuel economy.

Sensual Bugling Elk
Sensual Bugling Elk
8 months ago
Reply to  BolognaBurrito

Alright, I think I’m in agreement with you about the late 90s and the 2000s. In that era between when cars started getting heavy and when diesel emissions requirements got truly onerous to meet, I can see how diesel passenger engines offered a desirable value proposition. Hell, I’ve had multiple different professors go on in-class tangents about their disgust with VW about Dieselgate; they (the typical Saab demographic) bought VW diesels because they wanted the environmental benefits of Prius ownership without the accompanying boredom.

I still don’t understand the desire that lingers in some internet corners for passenger diesels to come back. I’m 2023 the value proposition just doesn’t seem to exist anymore.

Drive By Commenter
Drive By Commenter
8 months ago
Reply to  BolognaBurrito

Chevy Cruze has entered the chat. Full torque at 2000 RPM. Available in 2010.

V10omous
V10omous
8 months ago

I think the diesel wagon thing started as a forbidden fruit desire.

Everyone wants what they can’t have.

When I lived in Europe, my friends were jealous of our muscle cars and trucks (The biggest status symbols I ever saw in Europe were Ram SRT-10s and Raptors, they got more respect than Ferraris). Americans are jealous of diesel wagons because they generally can’t have them. The rational case really doesn’t exist, as you point out.

BolognaBurrito
BolognaBurrito
8 months ago
Reply to  V10omous

If that’s the case, why didn’t the Jetta/Golf Sportwagen TDI sell like hotcakes? It was offered here for like 7 or 8 years and was never a staggering success outside of a small niche group of buyers.

V10omous
V10omous
8 months ago
Reply to  BolognaBurrito

Yeah I guess I should have said enthusiasts often want what they can’t have.

MrLM002
MrLM002
8 months ago

Depends. I’ve dealt with so many damn electrical gremlins that if I’m buying another ICE vehicle it’s going to be a pre-EFI diesel. Mechanical injection, mechanical water pump, mechanical all the things.

Electricity is just spicy magic to me.

Cheap Bastard
Cheap Bastard
8 months ago
Reply to  V10omous

“It doesn’t take many expensive repairs to change that attitude”

Repeat German car owners prove otherwise.

V10omous
V10omous
8 months ago
Reply to  Cheap Bastard

Issuing correction: “It didn’t take many expensive repairs for me to change my attitude”

Cheap Bastard
Cheap Bastard
8 months ago
Reply to  V10omous

That’s better 🙂

MikuhlBrian
MikuhlBrian
8 months ago
Reply to  V10omous

We’ve had a few modern diesels in our garage. 2012 E350 Bluetec and a 2016 Ram EcoDiesel. The E350 was a great car. It wasn’t quick but it was fast and smooth and routinely got 33-38 mpg on the freeway at 80+mph. So smooth and refined. Once it got north of 150K miles, things started to go south real quick with significant repairs. Turbos, turbo seals. But the main culprit that contributed to the demise was the DPF. These modern diesels are just hard on their after treatment components.

The Ram EcoDiesel was a big fat lemon and ultimately bought back. Loved the truck but it was on a flatbed way to many times to go back to the dealer (including a 300 mile tow from Bishop CA to Bakersfield CA). Many of the components on the diesel engine weren’t up to snuff. Cracked turbo inlet, fouling sensors, and cracked high pressure fuel lines. When it worked, it was nice getting 25 mpg on the freeway in a big truck. After buy back from FCA, a year later we ended up in a 2020 Ram 1500 with the Hemi. Haven’t had any problems with that one at all.

While we enjoyed having diesels, I wouldn’t own another one. The “benefits” that you supposedly got over a gas powered vehicle are severely diminished with modern “clean” diesel powerplants.

V10omous
V10omous
8 months ago
Reply to  MikuhlBrian

Both of my diesel horror stories came on engines that were pre-DPF and are to this day generally considered “bulletproof” (VW 1.9 and Ford 7.3 Powerstroke).

So I only assume the situation has gotten worse since. You couldn’t pay me to drive a diesel vehicle.

LastStandard
LastStandard
8 months ago
Reply to  V10omous

I’ve got about 30k miles on my babymax ZR2, with only 1 trip to the dealer to replace a flaky NOx sensor under warranty.

Jury’s still out on whether it’s a keeper after the warranty is up. It all depends on the emission systems behaving.

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  V10omous

The fear is that those people’s defaults will pull the economy down with them.

As for diesels, I agree. I actually enjoy driving diesels in Europe since there is much less stop-and-go. Flowing along in a diesel is fun, stopping at every third light and dealing with NYC’s thirty-foot onramps is absolutely not.

V10omous
V10omous
8 months ago
Reply to  Vetatur Fumare

Per the article, defaults are still below the level they were in 2019, when general consensus was the economy was good.

Unemployment remains near all time lows.

As I outlined in my other post below, car loans don’t pose the same kind of systemic risk to the economy as mortgages do.

Basically, I’d need to see it get much much worse before I’d have any real concern about auto loans.

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  V10omous

Yeah, I mostly consider this a harbinger of things to come and not so much the actual cause of a potential crash.
Unrelatedly, why are people always going on about being “underwater” on cars? Has anyone ever defaulted on their auto loan because they were underwater? People buy cars to get around and to gain prestige, and will make their payments as long as they’re able.

V10omous
V10omous
8 months ago
Reply to  Vetatur Fumare

The reason to worry about being underwater is basically only if you foolishly trade in and roll negative equity into your next purchase (obviously avoidable), or total your car (sometimes unavoidable).

I really do have sympathy for people who buy a car, faithfully make payments, then get in an accident that isn’t their fault at just the right time when they owe more than the car is worth.

Drew
Drew
8 months ago
Reply to  V10omous

roll negative equity into your next purchase (obviously avoidable)

Unfortunately, if something happens and a person can no longer make their payment, it can also look like the only way to still have a car. People panic-trade into something with a lower payment, probably higher interest, and end up in a worse position if they end up in an accident.

It really sucks to be poor, because you’re generally just making the decision that doesn’t result in immediate catastrophe.

Dar Khorse
Dar Khorse
8 months ago
Reply to  V10omous

Right on! My 1996 E300D didn’t run on diesel – it ran on vacuum. As evidenced by the fact that I could have a tank full of diesel with everything else functioning as designed, and a teeny tiny vacuum leak on the highway could cause me to become motionless on the shoulder. And good luck finding that leak in the snakes’ nest of hoses under the hood! After a couple years of ownership and thousands in repairs, I gave up and sold it. Never again!

Gubbin
Gubbin
8 months ago
Reply to  V10omous

Yeah, they financialized car loans the same as they did mortgages earlier, creating a situation where people writing the loans had no incentive to deny and every incentive to approve if they could make the numbers fit. After all, they were just selling the loan to someone else who would bundle it into a security and sell that to a greater fool.

V10omous
V10omous
8 months ago
Reply to  Gubbin

I actually don’t hate this trend for two reasons:

One, the way we’ve built our society makes it a virtual requirement to own a car. In some sense, we owe it to people to make acquiring one possible.

Two, I’ve yet to be convinced there is any kind of systemic risk to the financialization of auto loans like there was with mortgages. Cars are very easy to repossess and resell, unlike houses. Your neighbor’s car going into default doesn’t affect the value of yours in the same way his house going into foreclosure does. If some banks take a haircut on an auto loan portfolio, that simply isn’t going to wreck the economy like the housing crisis did.

Drew
Drew
8 months ago
Reply to  V10omous

And I don’t see investing groups buying up foreclosed cars to control the market and rent them back to people who need them.

Gubbin
Gubbin
8 months ago
Reply to  V10omous

I just wonder if poor loan documentation comes into play the way it does with education loans and mortgages – I’d love it if debtors started demanding that loan servicers prove that the creditor actually and legally holds the loan.

Alexk98
Alexk98
8 months ago

My personal hope more than anything is that as loan defaults inevitable increase, and production continues to near closer to pre-pandemic levels, used car prices should slump at least 10%. That said, it’ll likely be a 2-3 process to get there, as demand is still high despite the high interest rates, but I imagine that will slump somewhat as student loan repayments begin to ramp back up and people will have to be more diligent with budgeting and the realities of their financial situations.

I hope too as used prices decrease and markups on average new cars disappear and incentives come back, that default rates, especially for younger buyers decreases. Decent affordable new cars DO exist, but I know far too many buyers that either over-extend because they “deserve something nice” or got screwed over by being in a tight market where everything new is marked up 10%+ and used options are far too pricey.

Newcarpetsmell
Newcarpetsmell
8 months ago

Does this explain all the 3 owner repo FK8 Type R’s for sale?

Last edited 8 months ago by Newcarpetsmell
Icouldntfindaclevername
Icouldntfindaclevername
8 months ago

The middle class and below are just screwed! Blame it all on the top 10%, money managers, wealth funds…etc Wall Street.

Mike B
Mike B
8 months ago

To the guillotine with them all!

Ranwhenparked
Ranwhenparked
8 months ago

That’s slightly misleading, isn’t it? Aurobay was a joint venture between Volvo and Geely, Volvo just transferred their stake in it directly to Geely. But, since Volvo is also owned by Geely, it didn’t really change much, Aurobay and Volvo are both still ultimately under the same ownership

Vetatur Fumare
Vetatur Fumare
8 months ago
Reply to  Ranwhenparked

The way Volvo worded it, I sensed shenanigans – thank you for clearing that up.

Sensual Bugling Elk
Sensual Bugling Elk
8 months ago

Well Covid child tax credits are expiring, student loan payments are back, cars are still expensive, everything else is also still expensive, and wage gains have been concentrated in the bottom quartile and top 5% of the economy. You know, the people who do not comprise the majority of new car loans.

So yeah, I’ll be hanging on to my trusty shitbox for another year while the economy continues its multi-decade run of unparalleled excellence at stripping my generation’s ability to buy anything.

Regards,
A Grumpy Millennial

Goose
Goose
8 months ago

Didn’t the additional/increased covid child tax credit expire last year?

V10omous
V10omous
8 months ago
Reply to  Goose

Yes. It was for tax year 2021 only.

Mike B
Mike B
8 months ago
Reply to  Goose

Yes, and child poverty is way up.

David Smith
David Smith
8 months ago
Reply to  Mike B

It’s tough to click on a smiley face on this comment.

It still needs to be known.

Mike B
Mike B
8 months ago
Reply to  David Smith

It’s a disgrace. Anything that actually helps lower income people must be cut at all cuts, but always a blank check when it comes to military spending and corporate tax cuts.

Cheap Bastard
Cheap Bastard
8 months ago

Nothing wrong with a good shitbox!

Canopysaurus
Canopysaurus
8 months ago

I see disruption on a Romulan scale.

Chronometric
Chronometric
8 months ago
Reply to  Canopysaurus

That was an obscure reference. You could even say it was well cloaked.

109
0
Would love your thoughts, please comment.x
()
x