the average period for an auto loan in the US is over 64 months. any disruption to the paycheck-to-paycheck living of 64% of americans could have a catastrophic effect on the ability to service this debt.
Seriously though, just like mortgage originations pre '08, anyone who had qualms about that kind of thing left that industry a long time ago, or never joined.
"buyer of the 1999 Oldsmobile Intrigue at Auto World Auto Sales in February.
A 26-year-old single mother of three, she needed a car to get to her new job as a home healthcare aide. She agreed to pay $3,899 — roughly double book value — and put down $1,200 cash on the deal.
As the due date for her first installment approached, Fields realized she’d need a few extra days to scrape together the $220 payment. The dealership wouldn’t wait. It repossessed the car a week after the payment was due"
https://www.latimes.com/business/la-xpm-2012-aug-15-la-fi-bo...
Plus, all of this was over a decade ago. It's irrelevant on both axes.
All the cheap beater cars that people just getting on their financial feet would have bought evaporated overnight.
I sympathize with the would-have-been sellers. I spent probably 8 hours recently to sell a 16 year old car for $4,200, and it would have been easier to do it the cash for clunkers way. But people buying that car are unable to get something newer or want to get their feet under them financially.
I don't think this is true. If you look at the cars that were destroyed as part of the CARS program, they don't have a large overlap with popular used cars in the US. The top CARS trade-ins were mostly 4WD SUVs and minivans; the most popular used cars a decade ago were (and are) mostly 2WD sedans.
Another way of thinking about it: the entire point of the CARS program was to incentivize car owners to prematurely (from their perspective) buy a new car by offering them credit for their old one. Combined with the disconnect between the cars traded in and the actual used car market in the US, I think it's safe to say that most of the cards exchanged in the program would not have entered the used market and therefore did not meaningfully impact it by going to the scrapyard instead.
Here's the top ten list:
1. Ford Explorer 4WD
2. Ford F150 Pickup 2WD
3. Jeep Grand Cherokee 4WD
4. Ford Explorer 2WD
5. Dodge Caravan/Grand Caravan 2WD
6. Jeep Cherokee 4WD
7. Chevrolet Blazer 4WD
8. Chevrolet C1500 Pickup 2WD
9. Ford F150 Pickup 4WD
10. Ford Windstar FWD Van
Everything on that list is prime shitbox, except arguably the trucks (because they cost a little much to feed).
What do you think happened to crappy vehicle prices as soon as the program was announced?
Anything that moved and qualified got listed for sale at approximately the same price as the rebate. Hence no more "$500 beaters" (not really $500 by that time but you get the point).
You see the same thing today where the scrap value of catalytic converters drives up the price of the cheapest cars because that's the alternative way of monetizing those vehicles
Most cars that left the road were the oldest and heaviest. New cars bought under that program tended to be economy cars and are already a decade+ old. To suggest that it took inventory off the road affecting today's markets doesn't hold water.
The biggest issue is that car companies make more money off reselling the loan than they do off the car. Years ago we tried to buy a Subaru in the NYC metro area in all cash and were continuously turned away. Dealers didn't make money off the cash sale, they were spiff'ed off the loan. We had to take the loan and then pay it off in order to get the car.
Since then it's gotten worse. Expensive cars (luxury, trucks) are sold with 72 month loans and are underwater shortly after purchase. It's been a race to the worst terms and empowering the worst purchases to the worse equipped buyers. I'm continuously amazed it's gone on as long as it has.
Pure fantasy.
Old commuter cars and family haulers were what was removed. Stuff like 90s Suburbans and F150s got turned in at a much lower rate than things like Cavaliers and Tauruses.
Remember, times were not great back then, trucks and SUVs are useful vehicles. You're not gonna get a lot of people who have old ones trading them in on a Camry because that's a net downgrade in capability. And the SUV craze was new enough that the trucks and SUVs that had been bought frivolously were still mostly worth enough to be unaffected.
>To suggest that it took inventory off the road affecting today's markets doesn't hold water.
It definitely put the used car market into a state it could have not otherwise gotten into. Whether it ever "recovered" is a matter of opinion. Many people say the private party shitbox market has never been the same but I personally think that's rose tinted glasses.
We ended up invovled with the state A.G.'s office investigating our dealer. They 'accidentally' put a typo in my wife's SSN when pulling the credit report. That justified a higher interest rate - which they offered us without explaining why.
We weren't super worried because we were going to pay the car off in a couple months anyways, we just wanted the financing to shift some cap gains taxes to a different year. Then we got a letter in the mail from the lender explaining why our interest rate was so high.
We called the dealer - and almost no questions asked they offered to send us a check for the difference. Red flag raised we filed a complaint with the state A.G., and it turns out it was a common practice at that dealership.
Never is a strong word. Dealerships make their money on financing. Refinancing afterwards is straightforward. Negotiating poorly on the dealership's financing, using that to win points on other fronts (e.g. price, maintenance commitments, trade-in value, et cetera) and then repaying the loan a month later, once you've lined up your preferred financing, is perfectly acceptable and often worth the time and trouble.
They have this awesome thing called negative equity financing. It might have a better name now, but they will pay you X for your old car which is less than you owe and then finance the difference with your new loan. In other words, your loan balance on the new vehicle may be higher than its value but this is glossed over by focusing strictly on monthly payments and "what you can afford". Re-read that, this is not a practice they'd use on people with bad credit because to repo the car will not get them their money back. It's a rip-off for people with good credit and more dollars than sense.
- I got a 0% APR loan on a new Ford via Ford Motor Finance in 2016 and didn't even have to put much cash down.
- I got a 0% APR loan on a new Hyundai Palisade in 2021 (yes, even after COVID!) by paying for almost half the car in cash as a down payment.
No other finance channel would have ever offered me 0% APR.
The next time we went to buy a car with a loan in hand from our bank, it was for my wife. We showed the guy the loan we had, he took one glance at it, and said he couldn't do anything better. He didn't waste any of our time. That was Lexus.
Suffice it to say that I'm willing to pay a higher price for a better quality vehicle with better quality service. I really don't want to buy from anyone else.
It was a time bomb. Cars are easier to seize than houses. Given the present shortages, re-selling them at close to the loan balance shouldn't be an issue.
It's still a tale of personal tragedy. I know people on the new-car-every-two-years bandwagon who will get screwed when they have an income interruption. But it's not a broader risk, at least not at this time.
Will there still be vehicle shortages if a significant number of cars are seized for resale and potentially a significant number of would be buyers are not able to obtain loans?
There is also the issue of raw materials, which can be reused.
its more palatable to subsidize these dicey loans (as we did in 2008) then come to jesus with the grim reality of following the letter of the lender instead of the spirit of the loan.
The Greece bailout was actually bailing out German banks for example.
..because those houses are selling for over $250k now?