Subprime borrowers who have experienced wage decreases and the newly unemployed are seeing a drastic increase in repossessions.
Automotive repossessions are on the rise. The financial tidal changes for the automotive industry represent a barometer for the rest of the worlds economy. It doesn’t necessarily mean that the health of the auto industry can be directly correlated to say, the housing market. Still, there is a lot of useful information that can be gleaned from current events in the industry.
Right now, we are seeing an extraordinary increase in repossessed vehicles.
“For those in the repossession business, it’s been difficult to keep up. Jeremy Cross, the president of International Recovery Systems in Pennsylvania, said he can’t find enough repo men to meet the demand or space to hold all the cars his company has been tasked with repossessing. With the holidays approaching, he’s been particularly busy as people prioritize spending elsewhere, and he’s expecting business to keep up throughout next year and 2024.”
NBC News
Car prices have dramatically increased, as have the prices of maintenance and insurance. While fuel prices have dropped recently, simply owning a new car has become prohibitive to many. The average monthly payment for a new car is up 26% since going back three years. It now averages $718 per month, which is well above the means of many borrowers.
The study, provided by Fitch, states that, “Subprime borrowers are more vulnerable to wage erosion and affordability concerns in the face of the softening global economy, rising inflation and monetary policy tightening that is expected to result in a mild recession in 2023.” The sheer amount of borrowers who have fallen behind on their payments is nearing pre-pandemic levels.
Fortunately, there are signs that used car prices are becoming more manageable, and that trend may continue. As the parts shortage slowly resolves, we may see further drops in new car prices as well. Still, the warning signs for the economy cannot be ignored.
Perhaps, sticking to a quality used car (like the one in this video), is the way to go – for now.
