The Auto Market Bubble Just Popped

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THE CAR MARKET BUBBLE: Thanks to @CarEdge and @LuckyLopez777

The website CarGurus found that prices are down almost 1% in the last 30 days. The biggest decline came from none other than Tesla, with prices now 33% less than they were a year ago. It's also worth noting that - year over year - crossovers are down 6.3%, hatchbacks are down 9.14%, Wagons are down 9.79% and vans are down more than 10%.

THE CAR DEALERSHIP PROBLEM:
Because Auto Dealerships buy cars on loans, rising interest rates are causing their inventory to become significantly more expensive to hold than it was in the past. As a result, many of them are making much less money than before and very motivated to sell.

THE AUTO LOAN BUBBLE:
Many banks and lenders issued loans on cars that were selling much higher than they ever should’ve been, simply because demand was high, inventory was low, and money was cheap. But today, buyers are underwater by an average of $6000 when they trade it in - meaning, they owe $6000 more on the car than the car is worth.

CAR REPOS ARE INCREASING:
Bloomberg just recently reported that “Car Owners are Falling Behind on Payments at Highest Rate on Record.” According to Fitch Ratings, “The percent of subprime auto borrowers at least 60 days past due on their loans rose to 6.11% in September, the highest in data going back to 1994.”

BANKS ARE PREPARING FOR DEFAULTS:
Banks are now a lot more cautious about who they lend money to - this means that getting an auto loan is much more difficult today than it was a year ago. Auto Loan rejections are also occurring at the highest rate in 10 years, with banks now writing off some of their loans as complete losses.

According to CNN, “analysts predict that auto loan delinquencies will continue to rise into 2024 and peak at about 10% before they start to fall.” The bad news, however, is that car prices are still 33% more expensive than they were, prior to the pandemic - it's unclear if prices will fall below that level anytime soon.

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*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. This is not investment advice.

[LesterDiaz]

I personally know a few people paying $700+ per month for used cars while working 15/hr jobs. Financial education is really needed in this country.

[funtechu]

2:10 just one correction, automotive manufacturers didn't get starved out of chips by other companies. Rather, it was a problem of their own making. For a little background, when you are a large purchaser, you typically order chip a year or two out to give the chip manufacturers time to adjust production capacity. In early 2020 the automotive manufacturers figured there would be a sharp reduction in the number of cars purchased, and immediately cut their chip orders for the following year. However, at the end of the year they turned around and tried to buy all they could, even though they had not provided the typical lead times needed. This essentially meant that their demand doubled in a period where they had previously told chip manufacturers they weren't going to be buying any chips, and as a result the chip stocks for common popcorn parts quickly ran out, sparking a massive shortage until chip manufacturers could catch back up.

[CarEdge]

Graham, thanks for mentioning our content in your video. Zach and I appreciate what you do!

[PN-velf]

I bought used 2011 camry 4 & 1/2 years ago, for 7k cash, with 76k mil. I've put 75k miles on it with new tires tire & oil change for maintenance. Car still going strong. Best car decision I've ever made.

[texasrose]

Oddly, car dealerships are calling and texting me out of the blue after I reached out them early in the yr. I already made up my mind to not get a new car so it’s crazy.

[mf]

One of the really big factors when purchasing a vehicle that people overlook is insurance! The biggest excuse for rate hikes is “inflation” from insurance agencies. This becomes a huge problem when all you’re paying attention to is the car payment amount per month. Suddenly your insurance hikes your payment and you start to understand you can’t actually afford that vehicle.

[Chth]

What would be truly revolutionary is if old school mechanical vehicles that don't rely on semiconductors that you can repair yourself were built again for people who want low maintenance and don't give a sh$& about bells and whistles can have something affordable. This shouldn't be a difficult concept.

[kilahlipstick]

This video was talking directly to me thank you, Graham. I live here in Vegas ( Summerlin) I bought a 2017 Porsche Macan S for 55K in 2021 my thought was I was going to rent it on Turo. Once the Turo prices dropped I decided it wasn't worth it so gone was that idea. The note is $1000 per month and when I bought my business was making $10 -$15K month so it was doable until I had a recent mild stroke which took me out of commission for months. Now I am back on my feet but my bills have all stacked up and for the first time I am behind on my car note. Fortunately, I have another car paid off so if I have to give the car back I will have something to drive. I am going to try to negotiate like you said but Capital One arent the nicest when it comes to take so fingers crossed

[Millixxxxxx]

My 17 year old, 70 horsepower Ford fiesta would currently sell for the same amount of money I bought it for in 2015 which is wild. It has thrice as many miles on its clock and its exterior suffered a bit over the years (it drives better than ever before though, I'm making sure of that). Inflation is crazy.

[BloodChapel]

still hasn't popped here in Damn, i can see all other states car prices are slashed like crazy.

[HowKiwi]

This is great news as someone dying to buy a new car. Just have to keep being patient…

Love your videos, Graham!

[buzzypeterson]

Cars are a terrible place to spend your money. My 220k mile Prius was the best thing I ever bought. A new/used engine installed costs $1800. Battery aftermarket is $1200. My last one had 450k miles when the catalytic converter was stolen. It ran perfect. The car litterally cost me less than zero to own, I was rear ended and got more than the car cost. And it keeps on going.

[xmateosx]

You said, "What's up Graham, it's guys here" right off the bat. I'm in the market for a new(old) car. Thanks

[stephenayriss]

In Wayne Michigan, across from the Ford plant, the dealership is full and parking lots down the road are full of vehicles with sales stickers on them

[Nicolas-kqlc]

All of that is very true! As head of finance for a bank, we are seeing a drastic, concerning increase in charge offs and repos. We just increased credit score requirements for loans too.

[ashdot]

Been waiting years to replace my 180k mile vehicle, thankful this rediculous, self-created bubble is coming to an end

[StarInfinite]

My car got totalled during the bubble. I really hated looking for another car but I need a car to get around. Just ended up downgrading to a toyota corolla at 250 per month because all the SUVs were way overpriced. I thought that was bad until I hear people financing 1000/month for a car like wtf.

[bettysmith]

Yup, used to stupidly trade my vehicle in every year... No more, now that my vehicle is 10K higher now with less quality I plan on keeping it, I paid it off in two years, and have had no car payment for over a year!!

[pingpongmaster]

Loved the video and the info. Thanks! Also, there is another very important factor, especially for younger millennials; student loan payments just started up again two months ago. So now families are really feeling the burden of the extra loss of income per month. Especially in families where both parents have student loans. During the pause they got used to having extra money to pump into the economy through their day to day lives and many bought cars with that extra income. Now, they’re feeling the pain. We will see less people able to buy cars and other things that stimulate the economy in the very near future. We can expect more big companies to make less profits, cut more jobs, cut corners, and raise prices even more than they are already have.

[tanner]

Never had a car payment, probably never will. Especially if i want to buy a house someday 😵