• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 56 mins GREEN NEW DEAL = BLIZZARD OF LIES
  • 18 hours Could Someone Give Me Insights on the Future of Renewable Energy?
  • 17 hours How Far Have We Really Gotten With Alternative Energy
  • 18 hours "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
  • 3 days Bankruptcy in the Industry
  • 9 hours Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 4 days The United States produced more crude oil than any nation, at any time.
The Global Economic System is Reaching Its Limits

The Global Economic System is Reaching Its Limits

The world's economic myths, especially…

ING Chief Economist Calls for Further Rate Cuts in China

ING Chief Economist Calls for Further Rate Cuts in China

China's consumer inflation was lower…

ZeroHedge

ZeroHedge

The leading economics blog online covering financial issues, geopolitics and trading.

More Info

Premium Content

Soaring Car Prices Put American Auto Loans Underwater

  • Used car loan-to-value ratios (LTVs) have been trending negatively for consumers, averaging 125% in the first quarter, an increase from 110% a year ago.
  • With the expected "accelerated depreciation" of used vehicles, a surge of borrowers with negative equity is predicted in the quarters ahead.
  • The increase in used car prices is expected to continue this year, potentially leading to a flood of repossessed vehicles hitting the used car market and driving prices down further in the event of a recession and rising unemployment.
Cars

Millions of Americans who took out loans to purchase overpriced used vehicles during the pandemic are at risk of going underwater. Financing costs are soaring, and used car values are sliding, culminating into a perfect storm as only the tip of the negative equity iceberg appears. 

On Tuesday, credit reporting firm TransUnion and market researcher J.D. Power published a new report warning in recent quarters that used car loan-to-value ratios (LTVs) at origination have "trended in the wrong direction for consumers." 

Originating LTVs in the first quarter averaged 125%, up from 110% for used cars in the same quarter a year ago—and up 21 percentage points versus the same period in 2021. A lower LTV indicates the borrower has more equity in their auto loan, and one above 100% means the loan exceeds the value. 

"As vehicle prices have risen and overall inflation remains elevated, consumers are increasingly starting in higher than average LTV positions to afford used vehicles. It's more important than ever for consumers to effectively manage their payments to fit within their budgets while also allowing for a cushion for other ongoing expenses like insurance and repairs," said Satyan Merchant, senior vice president and auto business lead at TransUnion.

Merchant expects "accelerated depreciation" of used vehicles in the quarters ahead will result in a surge of borrowers with negative equity. He said, "This will be especially important for lenders to monitor." 

In a separate report, Ivan Drury, Edmunds' director of insights, warned: "We are only seeing the tip of the negative-equity iceberg," with vehicle prices, mostly used car prices, expected to keep sliding this year. 

We penned a note in January detailing "More Americans Can't Afford Their Car Payments Than During The Peak Of Financial Crisis." The note explains that borrowers are overleveraged with +$1,000 monthly used car payments. And it's only when the next recession strikes and unemployment rises that a surge in delinquencies will give rise to a flood of repossessed vehicles hitting the used car market, driving prices down even further. 

By Zerohedge.com

ADVERTISEMENT

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News