Car Repos Are Exploding. That’s a Bad Omen

https://www.barrons.com/articles/recession-cars-bank-repos-51657316562

by jbonniwell • 4 years ago

35 87 4 years ago

trenning• 4 years ago

urn_piqoq• 4 years ago

Here I was imagining actual explosives hampering repo efforts, when they merely speak of a rising rate of auto repos. OK. I fell for it.

seanmcdirmid5• 4 years ago

Ya, I think the use of exploding here is in a confusing form. Most people will get the meaning, but a lot of people will think of other meaning at least for a moment.

trog• 4 years ago

My first read was that there were more open source repositories on Github for each new type of car, and I was like, "actually that sounds awesome"

Molomby• 4 years ago

I thought it was a story about EVs bursting into flames after being repossessed. Pretty confusing headline without context.

shakezula• 4 years ago

That’s an interesting data point. makes me wonder what other unconventional metrics could be considered to get a temperature on our economy.

mr_toad• 4 years ago

Garbage/refuse volumes are sometimes used as a leading indicator of GDP.

mdlman• 4 years ago

This is related, if not exactly on point: https://en.wikipedia.org/wiki/Waffle_House_Index.

xnx• 4 years ago

cardboard

dredmorbius6• 4 years ago

Utility shutoffs are a big one.

dredmorbius6• 4 years ago

"The Incidence of Extreme Economic Stress: Evidence from Utility Disconnections"

Steve Cicala (2021)

https://www.nber.org/papers/w28422

gnicholas5• 4 years ago

A friend used to work for Korn Ferry, a publicly-traded headhunting firm. She said that their stock was a leading indicator of economic trends because firms halt executive recruiting efforts as they can see warning signs for their business. This happens before the clients issue quarterly revenue guidance that makes their expectations explicit.

colinsane• 4 years ago

good lord. do they refer to themselves as a “headhunting” company, or is that your wording? it’s sort of terrifying, to be completely honest.

_whiteCaps_• 4 years ago

https://www.nytimes.com/2009/09/27/weekinreview/27healy.html

Underwear!

RC_ITR2• 4 years ago

Every answer you will get in this thread is wrong because once something becomes well known enough to be tracked, it stops being a “naive indicator”

The warden buffet underwear thing being a prime example. Every Walmart merchandiser now knows that “rule of thumb” and prices underwear against that “common knowledge”

dredmorbius6• 4 years ago

Look at (inflation-adjusted) price then, rather than total sales volume or units.

toomuchtodo• 4 years ago

Stimulus money papered over a weaker underlying economy, and the bill is coming due (no pun intended).

My note: even though employment and wages are strong, the aggregate consumer is not as strong as your usual indicators appear to be.

UncleEntity• 4 years ago

At some point it doesn’t make a whole lot of sense to pay for a car you can’t afford to put gas in to actually drive.

Back during the last pre-recession gas hike people couldn’t even give away their monster SUVs that they also couldn’t afford to put gas in. I was going to buy one for super-cheap but ‘cash for clunkers’ took care of that problem before I got around to it.

javajosh• 4 years ago

Why do people borrow money to buy a car? Why not save money, maybe invest in something safe(ish), and buy your car in cash, preferably used?

I get it that people get emotional about cars, but good heavens, this impulse puts you in the hole for years. It's almost as bad as cheating on your wife (and far, far worse than cheating on a gf).

providedotemacs• 4 years ago

People cannot forgo having a car for the time it would take to save up the cash.

MisterMower3• 4 years ago

Yeah, I’m not buying it. It’s not a choice between having a tricked out 2022 Lexus that costs $70k and no car at all. It’s the choice between a 2005 beater Toyota with 200k miles on it and no car.

Once you have that beater, you can start saving for something nicer. Find a make and model with decent reliability history that has hail damage or minor collision damage. It’s not hard to do.

If you can’t scrape together $2k to buy that beater then you have no business owning a car, period.

pbuzbee• 4 years ago

If you finance the car and invest your money in something with a rate of return higher than the interest rate, you'd end up with more money than paying cash.

...though of course many who finance cars aren't choosing to do that. The car you drive is both a status symbol and a personal luxury. I think many people would rather take on debt than get a vehicle they could only pay cash for.

wyclif3• 4 years ago

Obviously it's because they don't have the up-front down payment money, and maybe they get a new job that requires commuting by car.

Godel_unicode4• 4 years ago

The vast majority of people on hn seem to genuinely not be able to wrap their heads around the idea that this is a serious possibility. It’s super weird, but it also makes for some highly entertaining comments.

tomschlick• 4 years ago

If you have good credit (>760) you can get 0% interest or close to it loans pretty regularly if you wait. At that point there is no reason for me not to take on the loan and just setup autopay.

noirbot2• 4 years ago

Yea, for sure. I got a 0.5% loan on my first car and had a moment when I had some spare cash and realized "Wait, I'm essentially being paid money to have this loan after inflation" and there was no reason to really pay it off quicker vs. just saving/investing the money.

srvmshr2• 4 years ago

Slightly OT: how long does it take to get a credit score of 750+ typically?

Someone I know who recently moved to US, claims his less-than-a-year credit line is already at 770. It sounds a bit dubious but I would like to hear some validation about it. For e.g. it took me 4 years (admittedly on a junior researcher salary) to get to 780, so it surprised me.

naikrovek• 4 years ago

what planet are you on? my credit meets your criteria and I am regularly asked to finance for 12% or more by everyone, including the bank and credit union where I store my money.

seanmcdirmid5• 4 years ago

Car financing is a good way to build credit before buying a home. I regret that my credit score actually went down when I paid off my car loan early. The rules are really weird here. Using some credit is better than using no credit if you think you might need credit in the future (mostly to buy a house).

Also, buying a new car is much less of a hassle than buying a used one. The price difference between used and new ATM isn't so much to cover the extra hassle for many buyers. You want the car to be something that doesn't cause stress in your life, like many want a spouse/partner who isn't a constant drain on their emotions.

And then there are the many conveniences that are nice if you can afford it, but only if you can. It is purely a lifestyle upgrade, and not important to everyone, but it definitely makes some people happier, especially if they drive a lot.

thesausageking• 4 years ago

Car financing is a good way to build credit before buying a home.

I've heard people say this, but it's never made sense to me and sounds like something the loan industry has convinced people of just to sell more loans. Is it actually true?

Every time I've gotten a mortgage, they seem to just care about my income and whether I've had any missed payments on credit cards or other bills before.

And credit scores aren’t everything. Even with an >800 and money in the bank, after my startup was acquired, I couldn't get a mortgage because I didn't have any income I could show them.

theflyinghorse• 4 years ago

Why do people borrow to buy a car?

Cheap financing close to 0%, and long term contracts. In fact, financing on new vehicles is far far better than financing a used vehicle. Why would anyone vinance a used vehicle? Because even used they cost more money then most have in their bank.

Used cars require repairs, meaning they require a place to do these repairs or extra income to cover a mechanic. Also how does one recover from vehicle related downtime in a car centric society? These things should be priced in.

So, how much money does one need to get into a used vehicle and how much safety net do they require? Mind you, during covid car market flipped on its head, new cars were (and still are) 3-6-12-24 months wait, and used car market saw a massive increase in prices.

justin66• 4 years ago

Why do people borrow money to buy a car? Why not save money, maybe invest in something safe(ish), and buy your car in cash,

Financing for new cars is often available at rates that are so low, you'd be completely foolish to pay cash.

preferably used?

Yes, the amazing financing is certainly one of the incentives for buying a new, rather than used, car. That's why the manufacturers offer it.

sathackr• 4 years ago

I can get a car loan for 0%-5% interest rate

In most market I feel you can safely earn at least an ~8% return if you invest fairly conservatively.

Why would I forego an 3-8% return on my money by paying cash for an asset that's just going to depreciate?

mcone• 4 years ago

I tried to use cash to purchase a new Honda CR-V from the dealership in 2019 but they wouldn't let me. When I spoke with the manager, he explained that the dealership made more money off the loan than they did from selling the vehicle. Maybe things have changed since then though.

gnu8• 4 years ago

It's impossible to have a job without a car.

taneq• 4 years ago

Why do people borrow money to buy a car?

Because new cars are nice, and people are bad at time value of money? Also I think it's partially a cultural thing, very few of my friends and family buy brand new cars but I know some people would never even consider a second-hand vehicle.

It's almost as bad as cheating on your wife (and far, far worse than cheating on a gf).

What a curious point for comparison! Although I get your point if you just mean purely financially.

PheonixPharts• 4 years ago

I sometimes wonder is I'm living in a different time line than other people.

The CPI is up over 35% for used cars and trucks as reported by the BLS, versus new vehicles, which are up 12.5% [0]

That is, if you had wanted to by a new or used car last year and followed this advice you would have had to save an additional 12.5-35% to be able to purchase the car in following year.

Please let me know where from 2021 to 2022 I could reasonably planned to have put my money and saw gains north of 10% let alone 30%?

If you had saved for your car while I took out a loan not only would I have had started receiving value from that car a year earlier than you, I also would have saved money in the long run since most interest rates have been lower than inflation. In fact I could sell that car to you (or someone like you) now that you've finally saved up enough paying off my loan, getting to drive the car for a year, and likely still making more cash despite the depreciation of the car. Even if I had the cash on hand it would have been better to put that cash towards some non-depreciating asset or improvement.

If there are low interest loans for anything you need, especially in a time of high inflation, it almost always makes more sense to finance it then pay full cash.

Having more and more of consumer spending being credit based is a well known problem in our current economic environment but it's hardly the result of a moral failing as you paint it.

0. https://www.bankrate.com/insurance/car/inflation-and-rising-...

gnicholas5• 4 years ago

A combination of liquidity, lack of discipline, or something in the middle.

As others have pointed out below, some people don't have enough cash to buy a car when they need one.

Other people have enough money to buy a car, but wish to purchase a nicer car because of vanity or enjoyment reasons.

And other people are in the middle: they could afford to buy a low-end vehicle in cash, but they realize that the transaction costs involved with every purchase (sales tax, time spent searching/selling) are not worth buying a $5k car, then a $10k car, then a $20k car in the next 5 years. So instead they finance an $18k car and hope their job trajectory continues as planned.

MisterMower3• 4 years ago

We’re talking about about a guy who only has $5,000 on hand to buy the first car. Those transaction costs are dwarfed by interest payments.

I highly doubt his time spent at the tag office and at the dealer buying those cars is going to be worth more than ~$1,500, which is roughly what you’d pay in interest for a 5 year note at 3% interest.

greenthrow• 4 years ago

Inflation has been higher than the interest rates most people can get on a car loan. So by paying cash you are losing money.

fy20• 4 years ago

This is pretty much it, in the US it's cheap (low interest rates) and easy to get consumer credit. If you compare how much you would earn on $40k if you invested it compared to the cost of the loan, it's often more financially effective to take the loan.

In Europe it's not so easy to get credit, and interest rates are usually higher (in my country, even before the current situation, car loans were close to 10%). It is usually more expensive to take credit, except maybe with real estate.

depingus• 4 years ago

Also, cars are freaking expensive. An "affordable" new EV is nearly $50,000 USD. For most people, saving that much is impossible to do in a reasonable amount of time; Especially if you live in a place where rent is 60% of your income. https://www.cbsnews.com/news/florida-least-affordable-state-...

phendrenad2• 4 years ago

I did it to grow my credit score. I'm not sure what I'm supposed to do with a high credit score once I get it though.

nunez3• 4 years ago

do you have a thing that you really like spending money (or lots of time) on?

if you do, imagine that, but for a car.

some people (myself included) hate driving old cars and don't mind the monthly cost of paying for a car loan.

danaris2• 4 years ago

This is a perfect real-world example of the Vimes Boots Theory of Economic Unfairness:

"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles. But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while a poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet."

- Men At Arms, Terry Pratchett

If you can afford to buy a decent car today, you'll still have a decent car in a few years, and have only put some basic maintenance into it.

If you can't afford to buy a decent car today, you still need a car today, so you're going to buy what you can afford. Then in a few years, your crappy car will have crapped out (even with more-than-basic maintenance), and you need to buy another one.

So, ten years down the line, you will have spent more on cars than the well-to-do, and you'll still be hearing a weird rattle in the engine every time you make a left turn.

stefan_• 4 years ago

Why would someone extend a loan to people based on one-time or limited time stimulus payments?

Rury• 4 years ago

Maybe to take their one-time/limited stimulus payments, and then repossess when people can no longer pay?

I'm sure if they felt that they wouldn't be able to repossess, they wouldn't be nearly as incautious in extending the loan.

cyberge99• 4 years ago

Plus technology and some loan terms enable vehicle location and tracking on later model vehicles.

jakear• 4 years ago

Loans are assets. It’s free valuation.

iav• 4 years ago

Used Car prices have increased a lot in the pandemic due to the chip shortage, logistics bottlenecks, and rising demand. So most car loans that predate 2020 are in the money - the car can be sold to fully cover the loan. But cars purchased in 2021 are not necessarily in positive equity. This is why repos are growing and why they are mostly for car loans originated in the last two years.

troymc• 4 years ago

When I read the headline, I thought "car repos" were git repositories associated with car software, such as self-driving car software. Maybe those repos are getting really huge, i.e. with lots of code, hard to maintain?

But that's not the story at all!

nunez3• 4 years ago

Emphasis mine:

Most of the loans on recently repossessed cars originated during 2020 and 2021, whereas origination dates are normally scattered because people fall on hard times at different times; *loan-to-value ratios, or the amount financed relative to the value of the vehicle, are around 140%, versus a more normal 80%*; and many of the loans were extended to buyers who had temporary pops in income during the pandemic.

That's CRAZY!

This means that lenders were, on average, willing to lend not only the full cost of the vehicle, but also up to 40% of the equity of a previous vehicle! (This sounds like a practice that is more common in subprime land, but still, this suggests that you can basically get a loan with weak proof of being able to pay it back).

This article reminds me of the Air France 447 crash [1].

The long and short of it is that the pilots thought they were level based on the data from the pitot tube sensor, but because it was frozen and a SPOF, they not only got bad data, but they didn't know that the aircraft was actually tilting slowly downwards for hundreds of miles! Eventually, the aircraft stalled unrecoverably and crashed into the ocean.

Auto manufacturers have been increasing prices on new vehicles (and dealers on used vehicles) partly due to supply chain tightening, but also due to a perceived increase in people's willingness-to-pay in response to the tightening and temporary pops in income. However, this article suggests that, like the pitot tube in the AF447 disaster, their WTP data is not only wrong, but sending them the opposite way (and taking their financial forecasting and future stock prices with them when they inevitably bring prices back down to Earth).

[1] https://en.m.wikipedia.org/wiki/Air_France_Flight_447

endre• 4 years ago

even if that is the case, market will rebalance itself. it always does.

withinboredom• 4 years ago

And the chicken is always fed, until one day it is cooked for dinner.

piva00• 4 years ago

Surely it will. Like in 2008, we just offer human suffering as sacrifice to the Almighty Market.

Gotta keep feeding its rebalances, no point in fighting or challenging the will of a god.

Car Repos Are Exploding. That’s a Bad Omen

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