Car repossessions are surging — and the used car market could implode

There is a worrying situation that is spreading among car owners that could foreshadow an implosion of the used car industry, according to a new report.

Vehicle possessions are on the rise, and have even doubled among so-called “prime” borrowers, or people with good to excellent credit scores who are considered the least likely to default on their minimums, Lisa Beilfuss said. Popeo, Barron’s senior writer. CBS News.

Possessions occur when a borrower is left behind on payments for their car, giving the lender the right to seize the vehicle. The rise in recoveries comes after car prices rose during the pandemic as carmakers struggled to meet demand amid chip shortages and other problems. Used car prices rose particularly, with the average price of used cars rising nearly 17% in May to more than $ 32,000.

“The prices of used cars have skyrocketed and people have to borrow more and more to get their hands on a car,” Beilfuss Popeo said.

Used Bubble Car Market

Americans had “temporary income pockets” during the pandemic, thanks to stimulus checks, additional unemployment benefits and child tax credit payments, which allowed them to pay for more expensive cars, he added. .

This has sparked concern among experts that the used car market is in a “bubble,” Beilfuss Popeo noted.

But these government supports are over and many families are now facing budget deficits the highest inflation in the last 40 years. As a result, more consumers are impatient with their car loans, with subprime recoveries up 11% from 2020, according to car news site Jalopnik.

And holdings among major borrowers have doubled from 2% to 4% over the past two years, Beilfuss Popeo said.

“A red flag is that the recovery rate for major borrowers is starting to rise. Not only subprime borrowers are having problems,” he noted.

But there is a bright spot, Popeo said, who believes the rapid rise in interest rates as a result of the Fed’s aggressive hikes should cool the market as intended. “Demand is cooling: it should lower the prices of certain things, such as cars.”