This data, which we received from Edmunds, we asked them to crunch the numbers in
terms of how many people, what they're buying, what they're financing.
Now, here's the average in the third quarter,
financing a little over 41 grand average rate just under 6%.
And the average new car monthly payment on a loan was $703.
Well, look what's happened in the last year and a half.
The percentage of new vehicle buyers who are financing their auto
loan with a payment of at least $1,000 a month,
it's gone from 6% all the way up to 14% in September 14.3%, to be exact.
>> The Federal Reserve is continuing to put their foot on the gas pedal
when it comes to raising interest rates.
And that means more Americans are dealing with the financial headaches
associated with the high cost of borrowing.
Look, that's terrible enough for those who need to finance basic necessities
like housing, food, or transportation.
And consumer debt is already at an all time high, which is a testament to
just how little Trump's $2 trillion tax cuts for the rich trickle down on us.
But there are growing concerns regarding subprime loans in the auto industry,
which could translate to borrowers finding themselves unable to cover their
monthly car payments.
In order to fully understand the gravity of this issue, we need to dive into
the numbers and see just how much car debt Americans have racked up over the years.
When the Federal Reserve lowered interest rates in response to the economic collapse
of 2008, which made it far cheaper to borrow,
americans took on greater amounts of debt in order to buy cars.
In 2000, Americans had less than $600 billion in motor vehicle loans
outstanding, according to the Federal Reserve Bank of St. Louis.
By the third quarter of 2022, Americans owed just shy of $1.4 trillion on car and
SUV debt, a full doubling in barely a decade.
Soon, Americans started taking out pricier car loans that could be paid off
in a longer period of time, which is not a good thing.
For example, according to Edmunds, in 2010,
the average auto loan was around $26,000.
But that figure jumped to 32,000 by 2019.
And while it was far more common to finance cars with five year terms back in
the day, Americans started signing up for six year terms even before the pandemic.
Some loans today have terms as long as nine years believe it or not.
And I know what you're all thinking obviously,
Americans started borrowing more for their cars due to inflationary pressures.
The price of vehicles likely rose over the years, right?
But believe it or not,
that wasn't the case until the pandemic squeezed the supply of available vehicles.
From the mid 1990's until 2010, the price of a new vehicle remained flat.
After 2010, the price rose by about 8% in total until 2020.
So as with many facets of society, the pandemic disrupted and changed things.
The shortage of car parts,
and semiconductors severely limited the supply of cars.
And the Fed's ongoing fiscal policy of low interest rates,
meaning cheap money, drove car prices way up.
The price of new cars rose 20% between 2020 and
November of 2022, the sharpest increase on record.
The average price is now pushing $50,000.
The price of used cars rose by an even steeper 56%
through early mid 2022, another record.
Things started to change, but not necessarily for the better.
Since the beginning of 2022, the central bank reversed course on easy money and
began raising interest rates to tamp down on inflation.
That means that the cost of borrowing for a car has gone up significantly.
The average auto loan interest rate was 5.66% in March of 2022,
but by March of this year, the average cost of borrowing rose to nearly 9%.
But for some, a $700 monthly car payment is actually a bargain.
Get a load of what the owner of Scott Adams Toyota,
which is located just outside of Kansas City,
says about what he's personally experiencing at his own dealership.
>> What we've noticed,
especially here in the last 45 days with the Federal Reserve raising rates,
that at least 50% of our customers are having payments over $1,000 a month.
When you include sales tax and sometimes property tax, it's even more than that.
So it's at least 50% of the cars and trucks that we are selling.
>> And these astronomical car payments are causing some pretty serious issues.
We're already starting to see the impact of these unaffordable loans.
According to CNBC's reporting,
while borrowers who are behind on their payments by more than 60 days
represent a tiny portion of all outstanding auto loans, at 1.84%,
their ranks are growing according to a recent report from Cox Automotive.
The share was 26.7% higher in December than the year earlier and
is largely concentrated among borrowers with low credit scores.
And look, this is what I'm worried about.
This might just be the tip of the iceberg,
because some percentage of these outstanding loans are subprime and
have rates that adjust along with the Federal Reserve's benchmark interest rate.
Eight years ago, the New York Times reported on how banks and private equity
firms fueled a boom in subprime auto loans to the most vulnerable car buyers.
They wrote at the time that the New York Times had examined more than 100
bankruptcy court cases, dozens of civil lawsuits against lenders and
hundreds of loan documents and
found that subprime auto loans can come with interest rates that can exceed 23%.
And they profiled some people like Rodney Durham.
Rodney Durham stopped working in 1991,
declared bankruptcy and lives on Social Security.
Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.
Durham's application said that he made $35,000 as a technician
at Lourdes Hospital in New York, according to a copy of the loan document.
But he says he told the dealer he hadn't worked at the hospital for
more than three decades.
Now, after months of Wells Fargo pressing him over missed payments,
the bank has repossessed his car.
Durham is one of millions of Americans with, unfortunately, bad credit.
And these are the people who were easily obtaining auto loans from used
car dealers, including some who fabricate or ignore borrowers abilities to pay.
And the real question is, how many of these subprime car loans exist?
And how are these Americans making ends meet with rising interest rates that
are making their loans way more expensive and difficult to pay on time?
The problem is, state and federal lawmakers allow banks and
private equity firms to prey on working Americans.
But once there's an economic hiccup like pandemic induced inflation,
these Americans are on their own.
That's what happened with Americans who lost their homes, who were foreclosed on
as a result of predatory subprime mortgages during the 2008 collapse.
And it's likely the same will happen again, only this time with cars.
And keep in mind that cars lose value the second the buyer drives it off the lot.
So even if the borrower tries to sell the car,
it's very likely that they're underwater and owe more than what the car is worth.