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this post was submitted on 01 Oct 2023
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Where it gets spicy is:
Buying (financing) a new car, and then having it repossessed at half the purchased value (still 50%) debt to pay
If people have cars repossessed en mass, the second hand car market will be affected, prices for used cars go down (because the supply goes up). This makes repossessions not cover the whole loan, see above point
Finally, as more and more Americans no longer have access to cars, they also lose access to... A lot of society (work, education, healthcare). If this affects a large enough percent of the population, there will be macro effects.
Hopefully everyone stops paying their car loans and it deflates used car prices because they are insanely too expensive.
Banks suddenly getting burned when a bunch of bad loans stop getting paid at around the same time? What could possibly go wrong?
Getting some 2008 vibes. Thats what we need.
Meanwhile housing market is nuts. Nobody wants to sell because they’ll just have to buy and loose their sweet 2.75 refi. So now homes are still at jacked up prices because supply is low, but average 30yr mortgages are still at 7.8. So buyers, especially first time buyers, get stuck with an overinflated principle and a higher interest, getting the worst of both ends, and hoping either values hold or rates fall and they can refi in a few years.
If you remember 2008, it wasn't the bank execs that were burned, it wasn't even really the bank employees that were burned (although some did lose their jobs)
It was everyday people that lost their homes, their jobs, their lives.
I'm all for a bit if chaos in the name of redistributing wealth, or resetting some madness that has worked it's way into society, but I don't think this is it
If it's getting repossessed at 50 percent value, that means it's getting repossessed in the first year, and probably shouldn't have been financed in the first place. BUT, let's say they did, gap insurance is a thing that exists, for cheap, to cover that exact situation. Regardless, that debt can be cleared via bankruptcy, and is peanuts compared to most student loan debt. Smaller plans, multiple outs and protections available from the get go.
On top of that, student loan debt already prevents people from buying cars due to high debt to income, and already low post-grad income tied up paying loans, which are often as high as a new car payment, not to mention insurance and registration. On top of that, it makes them higher risk, raises their interest rates, and makes financing even more challenging.
There is no sane argument between the two.
I don't know mu h about USA student debt, I'm in the UK. That does sound pretty different
I was trying to point out how a wide spread auto loan defaults could have far reaching consequences
I'm not an expert but in my very brief googling, it doesn't look like GAP insurance covers getting repoed.
https://pocketsense.com/gap-insurance-cover-car-repossessed-8067238.html
To play devil's advocate, used car prices do not follow supply and demand. They follow perceived supply and demand by a conflict of interest. If you try to buy a used car, your salesman gives you info to push you to pay more. They have other lots to make it seem like there's low supply.
Carvana and CarMax operate similarly.
And if you feel like knowledge is power, Manheim/Cox numbers don't matter when you're purchasing through a greedy middleman.
Totally, however, to play devil's advocate of that... There is only so much inventory that these companies can hold. It's similar situation to house price crashes. Banks are left with too much stock.
However, with property, banks can rent them out.... Maybe we will see a huge industry of second hand rent-from-large-corporation-and-never-own-anythings popping up soon...
Conspiracy hat on.
Banks have gotten high on their own power. They realize they can compete in residential real estate and starve out the market by artificially decreasing supply and hiking prices. They know the US loves circle jerking (American) auto makers, and will funnel tax money to make them survive.
Banks will want in on the action and will back automakers to follow suit, cut supply/artificially decrease it, and increase prices (more than they are).
In that scenario 1 of 2 things happens, 1) we pay more cash for cars that are necessary for American life 2) we lease/finance ridiculous prices and the bank makes even more profit.
It's win win for them to support auto industry and supply them with the real estate they're holding on the side lines.