Repo Men Swoop as Low Interest Loans Begin to Backfire
"So many vehicles are being snatched from owners who stop making payments that some repo operators and auto auctioneers say lots are overflowing." This from USA Today; another sign that the U.S. automotive market is headed for the buffers, Big Style. Thomas Webb, chief economist Atlanta-based Manheim auctions, says that repos will rise 10 percent this year– for the second straight year– to 1.6m vehicles. As TTAC warned at the time (and subsequently), Webb says "overly generous" auto loans in the past couple of years are driving-up defaults, leading to a surge in repossessions. Last month, Wells Fargo wrote off $1b in auto loans, compared with $857m in '06. The new figure represents 3.5 percent of its portfolio; the bank says it expects a higher write-off rate this year. As repos increase, they flood the market with used cars, lowering residuals, trapping more and more customers in "backwards" loans. Burned banks (and credit companies tied to automakers) also raise their rates, making it harder for carmakers to move the metal. One part of a perfect storm?
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Difference between houses and cars is that no one lets a car sit on the market for two years hoping that its price will recover. Another issue is that there will not be much opportunity to buy repoed cars, fix them up, rent them out and eventually sell them at a profit. I would guess that there will more F250 diesels being repoed than three year old civics. There may be some opportunity to upgrade your beater, or to pick up a truck for your business, but I doubt that you will see many interesting or useful vehicles at the repo auctions.
hitguy: I'm fairly certain that this "rebate cheque keeping" thing doesn't happen. "Rebates" are generally for cars purchased paid in full, you get a X,000$ discount for paying up front (i.e. cash). If you 'bring your own financing' I'm not sure if that qualifies you for ALL rebates or the gigantic discounts. Usually they offer a couple thousand off during special (like the GM 'toe tag') sales just to move the metal off the lots, because there's at least that much built into the price they can afford to lose a little bit of the profit (at least on trucks).
When the Thai bhat crashed in 97 they had parking garages full of Mercedes and BMW cars that were given up by their buyers. I won't call them owners. I know two people that had their ride jacked, both basically dogged the car for moths until the day came. No maintenance, abusive driving, one guy even burned the back seat with a spotlight bulb while driving pizza delivery. When the fleet sales dry up, the banks tighten the screws, demand drop, and prices continue to rise then your looking at the abyss in car sales.
Somewhat off topic, but... TexasAg03, tell your friend to reconsider closing his credit cards if it's not too late. He'll screw up his credit score big-time. The fact that he has available credit and isn't using it shows that he is a responsible person. Also, length of credit history is important. The longer he's had those cards, the better. He's going to need that high FICO score sooner or later.