If there has ever been a time where repossessions will skyrocket, that time is now. Several things have occurred to cause the phenomenon. In fact some of the changes I didn’t learn until recently that were shocking as someone who knows the car business as well as how loans work. A decade ago, I would tell you that repossessions are best when economies are good which seems counter intuitive but it is the reality. Good economies equal lots of loans and also lots of defaults. However today is much different and i’ll try to explain why.
The first thing that changed a couple of years ago gradually is that banks stopped financing people to buy cars at strictly used car dealers. Not all banks but most of the big ones and most of the credit unions as well. They only finance used cars at new car franchise dealers which means that the people are paying top dollar for used cars, or even getting upsold into new cars. People go in with expectations of leaving with a 300.00 monthly payment and get put into a new Camry at 500.00 to 600.00 plus full coverage insurance.
Brand new instead of used
If you think those people going in expecting a 200 to 300 loan payment can afford a 600 dollar plus full coverage insurance payment you are very wrong. Right now apartment rentals are at an all time high which is squeezing them already. While yes many of these folks live collectively in these apartments sometimes sharing the rent with 2 or 3 other people is common, but the kicker is that jobs today while on paper look decent, most people know and see they are far from that. They are looking for the cheapest labor possible, many part time. Before you know, it catches up to them and these cars will go into repossession.
I am expecting an over abundance of default rates like never before. Remember populations in most bigger cities of the united states have recently quadrupled which brings my next reason for mass repossessions coming our way. Am I the only one who noticed that a decade ago it was around 1,500.00 for full coverage on a sports car and today those rates have at least doubled. This will choke out many of these new car owners, perhaps not right away but in time it will catch up and millions of them will be defaulting almost simultaneously.
The next problem we are facing is the middle class squeeze from all angles. This squeeze is real and has been chipping away at them for the last 10 years solid. Many of the old school middle class I know personally drive around in paid cars, even if they are a little older. But you have those that need to be nicer cars to show off or just feel the need to upgrade thinking like the middle class will continue to maintain its forefront. Those days are long gone, smart money is conserving and they know it. Now is not the time to get a high car payment along with all the high bills and lower income to cover. Americans are fleeing cities in search of better more stable cities and they simply do not exist anymore. Apparently this last year New Jersey had the highest mass exodus out of any of the larger cities, but I don’t fully believe that. I think Florida had to beat it but that is my own opinion.
In closing, I think its inevitable that mass repossession and credit collapse is coming. However at this time the giving of credit might be slowing down some, but it really doesn’t matter. The franchise dealers have made a literal fortune on the population increases and may continue giving credit all the way up to the day it can no longer. This will be a field day for agents.