Daily Archives: February 23, 2017

Car Debt And Bankruptcy

I blog a lot about the 1.3 trillion dollars of student

Car Loan Bankruptcy
Borrow how much for this car????

loan debt.  Car Debt is headed toward that amount.

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion.

 . . . .

Another way to look at: Every licensed driver in the U.S., on average, owes about $6,100 in car payments.

Kyle Stock looks into this issue at Bloomberg.

What Could Go Wrong?

Car Debt is just a total number.  By itself, meaningless.  What else is going on?

Indeed, delinquencies on vehicle loans, though rising, are still lower than late payments on student loan debt and credit card balances.

Well, that would sound a lot better if student loans were not such a mess.  You can still drive to work if you default on student loan or credit card payments.

Can folks afford to repay this record amount of vehicle debt?

In the past two years, U.S. drivers with credit scores of less than 620 borrowed $244 billion to buy cars, a tally not matched since 2006 and 2007 when the same strata of buyers rolled off with $254 billion in auto loans.

It says here, no.

Longer loans, 7 years, make it more likely there is an insurance lapse, accident, job loss, or other event that prevents someone from paying off that vehicle loan.

And, of course, the car depreciates faster than the balance declines, so, the later in the loan the default occurs, the more likely it is the creditor loses money on repossessing.  And, repossessing a totaled car does not happen.

More Car Sales Means More Car Debt, So What?

Wolf Richter looks at another aspect:

With car sales slowing for months, GM has kept production up, trying to move the iron with incentives, but that hasn’t worked. And overall inventory on dealer lots has soared to 874,162 vehicles at the end of November, up 26.5% from a year ago, up 28% from last July, and the highest level in eight years when GM was skidding into bankruptcy during the Great Recession. This pile of vehicles translates into 87 days’ supply.

The car makers have been upping incentives, and they expect sales to slow anyway.

GM has already started layoffs.  Which means, as always, more bankruptcies.

Back to the consumer side of the story.  Pushing inventory out, means lowering credit standards, as noted above, and by Mark Lennihan on the Quartz Media site:

More than 6 million American consumers are at least 90 days late on their car loan repayments, according to the Federal Reserve Bank of New York. “The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years,” said the bank a few months ago.

It says here, more layoffs, more defaults, more bankruptcies coming.

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