Car Repossessions Surging
Over the last couple of years, with supply shortages mounting from automakers and demand for autos at a premium, as the price of cars have surged, so too have higher auto loans and more repossessions.
In a report by Kelley Blue Book, the average MSRP for a new car has gone up 13.5% to $47,148 in May 2022. Add in higher monthly payments and limited budgets, more Americans are having trouble paying for cars bought in the last two years. According to Edmunds, 12.7% of customers that bought a new vehicle in the last two years are making payments for at least $1,000 per month.
It's been noted that subprime borrowers, or those with the worst credit history, are defaulting, up 11%, but even those with excellent credit have doubled in the past 2 years.
Besides supply shortages, many auto loans were put into forbearance during the pandemic while economic stimulus and unemployment benefits gave consumers the confidence to take on more debt to purchase a car. But as progress was made against alleviating the pandemic, inflation has heated up and interest rates have risen, causing distress with borrowers.
Lisa Beilfuss, a writer for Barron’s who covers the repo market, potentially sees a bubble bursting, citing several indicators, including the ones mentioned as factors. She added that one auto dealer that she spoke to who buys repossessed vehicles said that he sees repos surging based on what he’s buying in the repossession car market.
Don Adams of Don Adams Towing and Recovery of Owensboro, Kentucky, said last year that he reported approximately 175 repossessions and says this year alone he has repossessed 250 vehicles with another half year to go.
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