I am surprised we don't yet have impossible to ignore confirmation of a deep recession. I still expect this to be far worse than 2008, and to go on a lot longer. There is NOTHING good going on in the US, in any near term sense, as far as I am aware...nor Europe...nor Asia...nor anywhere. If you have some good news, please share it! -Fiz
I recommend this article because it was apparently written by zero hedge itself. Usually, when zero hedge makes a statement as clear as this (not just an article from an outside source which they've decided to republish), it turns out to be quite valuable.
http://www.zerohedge.com/markets/perfect-storm-arrives-massive-wave-car-reposessions-and-loan-defaults-trigger-auto-market
Perfect Storm Arrives: "Massive Wave" Of Car Repossessions And Loan Defaults To Trigger Auto Market Disaster, Cripple US Economy
Tyler Durden's Photo
by Tyler Durden
Saturday, Dec 17, 2022 - 06:30 PM
For almost a year now, we have been dutifully tracking several key datasets within the auto sector to find the critical inflection point in this perhaps most leading of economic indicators which will presage not only a crushing auto loan crisis, but also signal the arrival of a full-blown recession, one which even the NBER won't be able to ignore, as the US consumers are once again tapped out. We believe that moment has now arrived.
But first, for those readers who are unfamiliar with the space, we urge you to read some of our recent articles on the topic of car prices - which alongside housing, has been the biggest driver of inflation in the past 18 months - and more specifically how these are funded my the US middle class, i.e., car loans, and last but not least, the interest rate paid for said loans. Here are a few places to start:
Are We Headed For An "Auto Loan Crisis" As Delinquencies Begin To Rise? - July 7
A Flood Of Repossessed Vehicles Poised To Hit The Used-Car Market - July 25
American Drivers Go Deeper Into Debt As Inflation Pushes Car Loans To Record Highs - Aug 29
Credit Card Rates Just Hit A Record As The Average Car Loan Rises To Fresh All Time High - Oct 9
New-Car Loan-Rates Set To Hit 14-Year High As Affordability Crisis Worsens - Nov 3
So while the big picture is clear - Americans are using ever more debt to fund record new car prices - fast-forwarding to today, we have observed two ominous new developments: the latest consumer credit report from the Fed revealed a dramatic spike in the amount of new car loans, which increased by more than $2,000 in one quarter, from just over $38,000 (a record), to $40,155 (a new record).
Now this shouldn't come as a shock: a simple reason why new car loans have hit record highs is simply because new car prices have also soared to all time highs, as the next chart shows.
Here we will ignore for the time being cause and effect, or "chicken or egg" questions - i.e., whether record new car prices are the result of easy record credit, or whether record new car loans are simply tracking the explosive surge in car prices, and instead focus on something even more ominous: the explosion in the average interest rate on a new 60 month auto loans: according to Bankrate, as of Dec 16, the number is just over 6.50%, almost doubling since the start of the year, and the highest in 12 years.
It is this surge in nominal auto debt as well as the unprecedented spike in new auto loan rates, that we believe has finally pushed the US car sector to the infamous Wile Coyote point of no return.
Consider the following: according to various recent financial analysts, a growing number of consumers are falling behind on their car payments - a trend which will only accelerate - in a sign of the strain soaring car prices and prolonged inflation are having on household budgets.
As NBC reports, whereas repossessions tumbled at the start of the pandemic when Americans got a boost from stimulus checks and lenders were more willing to accommodate those behind on their payments, in recent months, the number of people behind on their car payments has been approaching prepandemic levels, and for the lowest-income consumers, the rate of loan defaults is now exceeding where it was in 2019, according to a recent report from Fitch.
Naturally, with the economy set to slump into a Fed-induced recession, the trend will only get much worse into 2023 with economists expecting unemployment to rise, inflation to remain relatively high (at least until the economy crashes) and household savings - already at record lows - set to dwindle. At the same time, a growing number of consumers are having to stretch their budgets to afford a vehicle; the average monthly payment for a new car is up 26% since 2019 to $718 a month, and nearly one in six new car buyers is spending more than $1,000 a month on vehicles. Other costs associated with owning a car have also shot up, including insurance, gas and repairs.
(continued at link, with charts)
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