Car repossessions on the rise — a disturbing sign for the used car market OLASMEDIA TV NEWSThis is what we have for you today:
There is a troubling situation among car owners that could portend an implosion of the used car industry, according to a new report.
Vehicle repossessions are on the rise and have even doubled among so-called “prime” borrowers, or those with good to excellent credit scores who are least likely to be in default at their lows, Lisa Beilfuss Popeo, a senior writer for Barron’s, told CBS -news.
Repossessions happen when a borrower is behind on their car payments, giving the lender the right to impound the vehicle. The surge in repossessions comes after car prices rose during the pandemic as automakers struggled to meet demand amid chip shortages and other issues. In particular, used car prices rose sharply, with the average used car price almost jumping 17% in May to over $32,000.
“You’ve skyrocketed the prices of cars and people had to borrow more and more to get a car,” said Beilfuss Popeo.
Second-hand car market “bubble”
Americans had “temporary income” during the pandemic thanks to stimulus measures, additional unemployment support and child tax credits, which allowed them to afford more expensive cars, she added.
That has raised concerns among experts that the used car market is in a “bubble,” noted Beilfuss Popeo.
But that government support has ended and many families are now facing budget deficits given the highest inflation in 40 years. As a result, more consumers are in default on their car loans, with subprime repossessions increasing by 11% since 2020, according to to the car news site Jalopnik.
And prime borrower repossessions have doubled from 2% to 4% in the past two years, Beilfuss Popeo said.
“A red flag is that the repossession rate for prime borrowers is starting to rise. It’s not just subprime borrowers who have problems,” she noted.
But there is a bright spot, Popeo said, who believes the rapid rise in interest rates driven by aggressive Fed hikes should cool the market as intended. “Demand is cooling down — it should lower prices for certain things, like cars.”