The Car Market Bubble Is Collapsing

hi my name is andre jake hope you're doing well come for the finance and stay for the crazy video because today i get to confront the man who has been warning everyone about the impending car bubble which according to him has already popped which means there's a good chance we're already in a recession and we're about to find out next week on july 28th at 8 30 a.m when the bea releases the second quarter advance estimate so let me rewind and share with you some crazy statistics from kpmg consumer reports and lending tree that really blew my mind and then this video is going to get really spicy so i smash a like button and subscribe before the economy goes crazy here's what's happening right now americans owe roughly 1.46 trillion dollars in auto loans that represents 9.4 of all the consumer debt that's out there right below student loan debt at 10.1 percent and this is something that's been happening pretty recently over the last two years because if we zoom out and we look at the data between 1990 and 2021 you could see this spike of 42.4 percent that happened pretty recently and in a very short amount of time now between 2020 and 2021 alone used car payments went up 18.1 from 413 to 488 dollars a month in the first quarter of this year we're now at 503 a month and that's for used cars alone now according to moody's analytics of vehicle affordability a person now needs 41.3 weeks of income to buy a new car in comparison to what was the average which was only 34. that brings us to today where people are still paying 10 000 more than they should be one in 12 americans are more than 90 days late on their car payments and 8 out of 10 americans are still overpaying for their cars 82.2 percent of new car sales are now sold over msrp value and the reason why this number is crazy is because just last year in january 2021 this number was only 2.8 and crazier still was that in 2020 that number was 0.3 so what this means is that now the majority of buyers are overpaying for their cars leading some people to believe that the car market is in a bubble which is an even bigger sign that our economy is in trouble and the reason why some people believe this is because of what are called repo rates in other words cars that have been repossessed because the buyer was not able to make their minimum monthly payment so now they're in default as of right now roughly one in eight cars are repossessed but that number is probably much worse so the reason why cars specifically are so important to this story is because when economists look at what the odds of a recession might be they might look at things like gdp levels and the federal funds rate the inverted yield curve asset prices like real estate stocks commodity prices treasury bond yields and other fancy words you've heard of that people use to sound smart all the time totally not me but a lot of that data is mostly backwards looking and not everyone pays attention to those things because not everybody invests in those assets but cars is something a lot of people have and the way people prioritize their car payments tells us a lot about what the economy is doing because when things go south cars are one of the first things people stop paying for long before they stop paying for everything else so in today's video i want to go visit the person who's in the business of buying cars in the repo market so that he can explain and make sense of everything that's going on and share some data so that we can hopefully better prepare for what could happen next so let's go see him right now lucky lopez is a local here in town who is in the business of buying and selling cars here in las vegas nevada he's one of the first guys on the scene when a car gets repossessed to buy it from a bank or an auction house he also has a youtube channel and he's recently been featured on barons cnn and most of all my youtube channel because it's the coolest of all these and what he has to say will blow your mind alright so here we have lucky with us today thanks for coming on thank you for having me that's even your real name it's my only fans i know it can you please paint the picture of what's going on in the car market as of right now we're seeing record high default rates and the reason why we got here is during 2020 and 2021 we saw loan origination which is a fancy term for new loans skyrocket now the reason why this is so significant is because it coincides is it coincides it's a word that it coincided with the stimulus payments now when this money hit the market car sales just shot up now normally with repos there's no rhythm there's no pattern there's nothing like that but what we're currently seeing now is that a lot of the loans that are going up for repo have the same origination dates of 2020 and 2021 and it's because a lot of these banks got really loose with their lending and we're lending out way too much ltv all right so can you please explain what ltv means because i'm sure most people have never heard of that phrase sure so ltv is loan to value most subprime borrowers land 80 to 90 of a vehicle's value so if your car is worth 10 000 they'll loan up to ninety percent of that but during the pandemic because of the chip shortage and the increase of used car prices they loosened up their lending and they started going up to a hundred and forty five percent of ltv so now that ten thousand dollar car they can get a loan all the way up to fourteen thousand five hundred dollars even if the car is not even worth it and the most scary thing is is that 96 of the borrowers didn't have any type of income verification wow and now that interest rates are going up now the stimulus has dried up and the economy is going down we find ourselves here exactly check this out loans that are past due on a state-by-state level have been skyrocketing right now the best state in the whole country with the lowest amount of loans past due is actually utah with only 4.5 percent of all auto loans that are 30 days past due but that is the best state in the whole country another example is new york which is the 10th worst state in the whole country at 10.1 percent of all loans at 30 days past due which means roughly one out of every 10 people in new york that are walking here have stopped paying for their cars but the worst state in the whole country may or may not surprise you is actually washington dc at roughly 23.4 of auto loans that are 30 days past due which means almost one out of every four people in the state of washington dc have decided to stop paying for their auto loans all right so can you please explain exactly how we got to this point well it's your good buddy papa powell i love papa pal papa bless well to expand i guess a little bit more on that in march of 2020 we got the cares act that pumped 2.2 trillion dollars in the market and that's how it all started on april of 2020 car sales fell by 46 by the summer of 2020 rental car companies were facing bankruptcy suppliers started telling people that there was a chip shortage which is also around the time that the second round of stimulus came out for 900 billion by january of 2021 automakers stopped producing as many cars so supplies started to dwindle down march of 2021 the american rescue plan injected another 1.9 trillion dollars into the economy and by april 2021 sales started to exceed supply and car prices skyrocketed and that's when people got their stimulus checks now as a dealer we use this matrix called days on the lot and as you can see here from the graph and april 1st of 2020 was at its peak of 53 days now this is during the pandemic when everything was shut down people were afraid to buy and they weren't doing anything but as people got their stimulus money they rushed to the dealerships to buy overpriced inventory and as you can see from the graph the average days on lot started to shorten but what the data doesn't show you're saying is the repo market and that's because when banks give loans to people to buy a car those loans then get packaged up and sold off kind of like they did in 2008 for housing they sell them off they rate them not always accurately and then they sell them off to big investors and hedge funds correct what most people don't know is that when this happens as a bank they have to report late payments and repos part of the fdic regulation but as a private investor or as a hedge fund they're not allowed to share that information because of the fair credit act now the fair credit act says that consumer information cannot be provided to anyone without a purpose specified in the act which is a fancy way of saying they're not just going to give out your financial information to anyone that asks and this is supposed to protect us as consumers from big companies like banks and dealerships saying look at andre over here you can't afford his toyota corolla his credit score is like 600. nobody give him a loan get it malone like a loan ah charlie we're getting old that's why it's partially difficult to find data and information about all this because it's not publicly shared so let's go ahead and do this let's go out and see the data in real life this is going to be super cool because we're going to show you guys something that nobody has access to you have to either be a dealer or a banker to go to these repo lots or these auctions now we're gonna give you a little peek behind the curtains and show you exactly what we do we're going to the staging area this is where they line up all the cars for the weekly sale so remember how we talked about how the banks are smart and they only trickle out cars so the cars here in this front section are only the ones that are going for sale this week the rest of the reserves is in the far back all right so behind me is a ton of cars what are we looking at right there so this is a staging area for the cars that are going up for auction this week so if you look behind us you can see hundreds of cars now this is only a small piece remember the banks are really smart a lot of the cars are being held back there and they're only going to trickle out a few every now and then so this way they'll crash the market all right so what we just showed you before was the front end of the building which is roughly 20 of the inventory right here where we're driving will take about an hour to just walk it'll take 10 minutes to drive through and this represents the other 80 of the inventory normally we're gonna walk this but this would be a one-hour video so we're gonna get in the car and we're actually gonna drive just to show you how massive this is so as of right here this is the actual point where they're selling the cars everything back this way is a staging area it's probably going to take us about maybe 10 minutes going about 20 miles an hour to get all the way the back so there's a fresh pickup it's right there you see the car right there they're literally repossessing a car right as we're driving so we are literally being followed by security right now behind us like that's a security truck right there now what kind of cars do they typically have in there it's just like any car exotics yeah it's it's exotic cars it's regular cars it's boats it's jet skis it's motor homes rvs anything you can think of that can be possibly repossessed is in this life anything that can be taken is in there 100 all right so that was pretty crazy so what i saw was that there was a long line of cars which is kind of contrary to what we're told which is that there is a supply shortage and that there's no inventory but that's not at all what i saw there's definitely not a shortage people are overpaying for cars the banks are smart they can be sitting on five thousand repos they're not going to dump them all at the market at one time they're going to control that flow and trickle out those cars slowly so this way the market doesn't crash so maybe a couple hundred every week correct kind of like the diamond industry where uh diamonds are a girl's best friend but inventory flows are a bank's best friend you know what's even crazier is that manheim the auction we're at tells me as a dealer how much we're gonna pay for cars kelly blue book tells the banks how much they can lend on vehicles and autotrader tells the public on how much they should pay for cars and all three of these companies are owned by cox automotive so it's a monopoly basically 100 it's kind of like the exotic output for cars google exotic if you ever have a chance it's basically a legal monopoly now i will say that there's one argument made against this saying that well perhaps your stories are more anecdotal in the sense that maybe you're just dealing with subprime borrowers the people with lower incomes of course those are the people that are gonna have the hardest time paying because of their lower incomes but you're saying that it's not just the subprime people it's the prime borrowers that's what's scaring people since last year the repo rate has almost doubled from 2.1 percent to 4 which doesn't sound like a lot but that's almost a 100 increase right i mean these people could afford it at the time they had good credit but unfortunately due to inflation maybe the rent is doubled gas has definitely doubled and the affordability of these vehicles is no longer feasible so now you're at a point where you have a depreciating asset where you're upside down 40 and you got to remember 96 of these people didn't have their income verified so now we have a 2008 housing crisis where people are going to be upside down in their cars instead of their houses and they may just walk away from it what would you say for people trying to buy a car right now i would definitely wait i mean i know if you need a car go get one but always get a pre-approved from your credit union do not go to the dealership and get financing because you'll get taxed with all kinds of stuff and also take your time and buy the right car and don't buy anything that's super expensive because as the market starts to dip we're expecting about a 20 decrease and you gotta remember if you buy a 10 15 000 car that decrease is gonna be very minimal a couple hundred dollars but if you buy a 60 70 or even a hundred thousand dollar escalade you're talking 10 20 000 so be smart be patient and don't be in a rush to get your car and when was the market kind of estimated to somewhat recover and the supply and demand kind of balance out it's been a mixed bag everybody's kind of given their two cents my professional belief is that it's going to be within six to eight months is the market's going to stabilize prices are going to come down and the flow of new vehicles are going to hit the market it should stabilize quite a bit and i've seen estimates that say that it'll recover by the end of 2022 or maybe as late as 2023. correct that's what most people are saying thank you for coming on and uh what's the scam the scam is the car market the scam's the car market then what are you peddling my friend i sell you car go check out lucky's youtube channel he's a local here in vegas subscribe to him he's awesome thanks for coming on thank you for having me as always have a wonderful rest of your day smash the like button subscribe if you haven't already go grab up to 250 worth of free bitcoin right here please do not keep your crypto online just grab the money while it's there and then immediately take it off and keep it on cold storage also grab your free stocks links are down below and then go track them automatically with the spreadsheet linked down below in my patreon love you thank you so much for watching i'll see you back here on monday friday sometimes wednesday i'll see you soon bye

Channel: Andrei Jikh

Views: 1,145,777

Keywords: how to invest, bitcoin, million, ethereum, market crash, crypto, stock market, passive income, dividend investing, dividends, dividend stocks, crypto crash, stock market crash, bitcoin crash, NFT, how to buy bitcoin, cryptocurrency, robinhood app, best trading app, stocks, investing, investing for beginners, how to invest in real estate, how to invest in stocks, best stock trading app, credit score, andrei jikh, best investment, dogecoin, robinhood, portfolio, millionaire, recession

Id: PpvP6R4gT4A

Length: 13min 25sec (805 seconds)

Published: Fri Jul 22 2022

Reddit Comments

[u/rb109544]

10 and 15 yr auto loans soon to be reality since folks wont be able to afford the payments....

[u/Boxofusedleftsox]

Repossession is up where I am. I work on a repo agents fleet of trucks. His business has been so slow that he could leave a truck or 2 with me for months. He's now getting around 50 new cases a day and can hardly leave a truck with me for more than a week.

[u/Own-Trainer1509]

Bring it. People needs to wake up.... The veil needs to be lifted from their eyes. And it can't be forced..... So..... Bring it 🙏

[u/Gebzzyo]

I remember peter schiff talking about this forever ago.

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A few trillions printed later and we are back where we where 3-4years ago xd