Cars are important to American life, for the country cannot be effectively navigated, including local communities, without one. People spend lots of money on cars for this reason. As such, they are a notable source of debt for many.
But what happens when a person cannot pay his loans? Moreso, what happens if large numbers of people cannot pay their loans? Even worse, what happens when loans are made to lenders who likely cannot pay, in what is known as “sub-prime” auto loans?
Sub-prime loans and massive defaults were greatly involved in the 2007-2008 economic crash, when personal debt reached high levels across all areas of life and the common man in a reflection of the American corporation, burdened by debt, could no longer pay his bills. The difference was that while the corporate world had their losses socialized by TARP bailouts, the common man was often forced into increasingly stringent bankruptcy laws, destroying his personal finances and for many, their lives.
It was recently noted that “junk bonds,” or poor-quality high-yield and high-risk bonds, another contributor to the debt crisis ten years ago, were back, as an ominous sign for the future. In another development, auto loan debt has soared according to a report:
As auto loan debt has soared, so has the number of people who can’t pay, with the level of serious delinquencies breaking past the heights reached just after the financial crisis.
More than 7 million Americans are 90 days or more behind on their vehicle loans as of the end of 2018, according to data released Tuesday by the New York Federal Reserve. That’s more than 1 million higher than the peak in 2010 as the country was recovering from its worst downturn since the Great Depression.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market and warrants continued monitoring and analysis of this sector,” Fed economists said in a report that accompanied their quarterly look at U.S. consumer debt.
The surge in delinquencies came along with a $584 billion jump in total auto loan debt, the highest increase since the New York Fed began keeping track 19 years ago.
On the bright side, the overall level of overall credit quality actually improved, with those at the lower end of the spectrum declining to 22 percent of the total share while 30 percent of the $1.27 trillion in total auto debt is now held by those on the higher end of the scale.
Those numbers “would suggest that the overall auto loan stock is the highest quality that we have observed since our data began in 2000. However, with growth in auto loan participation, there are now more subprime auto loan borrowers than ever, and thus a larger group of borrowers at high risk of delinquency,” the report said.
Debt issued by auto finance companies, rather than at the dealer level, is responsible for most of the growth by less-qualified borrowers. Of the total auto finance debt, 6.5 percent was past due in the fourth quarter.
The flow of debt that slipped into the 90-day past due category edged up to 2.4 percent in 2018, compared with a low of 1.5 percent in 2012.
Overall, household debt rose by $32 billion, or 0.2 percent, to $13.54 trillion in the fourth quarter. That’s $869 billion higher than the crisis peak of $12.68 trillion and is 21.4 percent above the post-crisis low point in the second quarter of 2013.
Student loan debt edged higher to $1.46 trillion while credit card balances rose to $870 billion, right around their crisis peak.
Generally, though, Americans were less hungry for debt than in the past: Credit inquiries fell to their lowest level in the history of the Fed survey, driven largely by a decline in refinancing requests. (source, source)
I have no economic ill will for anybody. However, as a witness to and one who followed closely the news building up to the crash of 2007-2008 and the years after, I can say that times are curiously similar to the years before the crash.
Make no mistake, there is no “immediate” crash coming, and no need to panic. To the contrary, it would seem to be a healthy warning for the prudent, which is to prepare for the future.
Imagine if you knew what would happen in 2008. Imagine the profit that you could make, and how you could help your family better than before.
Just imagine if you had a window to the future.
Time change, but man does not, and while history does not “repeat” in the literal sense, there is a definite “rhyme” to it, and if one looks closely enough, one can begin to get a sense for that rhyme.
The historical “rhymes” for war have definately returned. To that, one can also add that the “rhyme” for a crash seems to have returned.
I cannot and will not pretend to give financial advice of any sorts. But I do say that now seems to be a good time to think about making some “intelligent decisions.”
For example, if you knew or had reasonable suspicion to believe that you could buy assets in the years to come of all types at cheap prices, would you work more hours, or maybe take a second job?
If you knew that your family may suffer hardships, would you take time to do the things that would guarantee an easier future, such as with planting a garden, paying off debts, or reducing expendatures?
As always, it is the simple and small things in life that often make the difference between a man’s success or failure.
I do not wish evil for America or her citizens. However, just as with any nation, there are certain patterns which suggest based on past experience a series of likely future events.
It is said that the man who forgets the lessons of the past is doomed to repeat them. With history as a guide, what is the purpose of “re-inventing the wheel”?
The same can be said about such examples of the past.
Take it into consideration. Think about it. Chew on it. And in the meantime, maybe consider that even if a crisis in say, five to ten years from now does not happen, how much better one would be with a little more personal efforts.
Indeed, what has one to lose with such potential to be realized?
Prepare yourselves accordingly.