The coming automobile market collapse and what it means

The auto industry collapse is just beginning. The next 18-24 months are going to be painful for your car salesman friends.Pre-2020, auto loan delinquencies were pretty much between 2-3%. Today that number has exploded. Its 10% in Texas and 23% in DC. Nationwide, its around 9%.

Americans owe more than $1.2 trillion in auto loans. Its the highest in history and that number is up 75% since 2009. More than 85% of purchased cars are financed.

Part of the problem is that over the last decade or so, car dealerships are making more profit on the financing deals than the car sales themselves. This has been very lucrative for the finance guys at the dealerships, but not great for the consumer. These shady places are giving customers 15%, 20%, 25% or more interest rates on cars. Even reputable dealers push up the rates. A customer that qualifies for 2% financing might be given 5%, and the dealer gets a kickback.

One study from 2021 said that about half of all auto loans were given to people who could not afford them. Only 4% of applications verified employment or income. So what's happening - these loans are starting to default.

After the China flu chip shortage slowed down new car deliveries, the price of used cars exploded, and not only were customers that couldn't afford a loan given one, they were immediately upside down. That $30k 2020 Chevrolet Impala is worth $17k.

These cars are starting to get repossessed and with used car prices down 22% from their 2021 high, banks are starting to take some massive losses. And with more and more cars getting repossessed due to high inflation and rising gas prices, they are expected to drop another 20% over the next year (Side note and not the point of the thread - if you are thinking about buying a used car - wait until 2023)

So the banks. are going to be looking for a bailout, and they might get it, even if the GOP takes over after November. Banks are big time lobbyists. Unlike student loans, mortgages and credit cards, there is no federal oversight of auto lending. The deal the banks might end up with would be "We'll bail you out, but we want to regulate auto loans."

Which sounds like a win for consumers but it isn't. Lenders won't be able to lend someone that doesn't qualify for a car any money, even at a high interest rate. It wouldn't take long for there to be a crisis.

Enter the government, who could conceivably come up with incentives for lenders to lend - as long as the cars being sold are electric vehicles. This is where we are going, folks. Everything is by design.