Yesterday I noted that the some of the same structural problems that permeated the mortgage market have spread to other consumer credit markets; namely car loans were being stretched to seven years. This step will marginally bring down monthly payments. Throw in the heavily advertised negative equity loan offers being offered by local dealers, and the same toxic mixture of loose credit with no standards is being is in the auto market as it was in the housing market. I was beginning to wonder when there would be significant problems in the servicing of those debts.
Thankfully USA Today read my mind and printed this story concerning rising repossessions:
Car and truck repossessions this year are headed for the highest level in at least a decade, thanks to easy credit and a faltering economy, says an economist for one of the largest wholesale auto auction services.
So many vehicles are being snatched from owners who stop making payments that some repo operators and auto auctioneers say lots are overflowing.
This year's predicted 10% rise in vehicle repos to 1.6 million would be a third higher than 10 years ago, says Thomas Webb, chief economist for a unit of Atlanta-based Manheim, which sells cars to dealers worldwide. The increase comes atop a 10% rise in repos last year....
An executive at another big auto auctioneer says that easy subprime car loans in recent years are a big reason for the flood of repossessed cars...
"Our business has skyrocketed," says Patrick Altes, president of Falcon International in Daytona Beach, Fla. In recent times, his service saw a first wave of defaults that involved picking up boats and recreational vehicles.
Now, it's cars and trucks, often in affluent neighborhoods.
"A lot of the vehicles we're getting are high-dollar pickups" whose owners got caught in the construction downturn, Altes says.
Speculative purchases based on ever increasing values of cash being accessible through either HELOCS or annual refinancing is where the cash came for these cars and trucks. Now that the home ATM is shut off and HELOCS are being squeezed by higher credit standards, there is no cash to pay the monthly payment.
I don't know how much more containment we can take.