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Americans can't afford their cars any more and Wall Street is worried
- xnx 1y agoPreviously: "US car repossessions surge as more Americans default on auto loans" 3 days ago | 237 comments https://news.ycombinator.com/item?id=45622157 https://news.ycombinator.com/item?id=45622157
- vondur 1y agoI’ve seen some crazy stories on YouTube about people trading in cars they’re already underwater on just to finance an even more expensive one. I can’t understand why banks keep lending money for deals like that.
- ronbenton 1y agoWell hey it’s not like subprime loans ever got us in trouble
- Gigachad 1y agoGood news is the current US government is rolling back all of the regulation to prevent these bad loans from being given out, just to keep the music going for a little longer before this all blows up.
- johnnyanmac 1y agoAt this point I just want it to happen. Americans won't react otherwise, as history has shown. Yes, the working class will suffer the most, but they are already doing so by default. The rich won't crash but they have a much bigger fall.
- pengaru 1y agoNothing new there. My childhood friend's brother has gone through so many new cars I lost track, and never paid off a single one of those loans. We're talking a pattern that began in the late 90s with this guy. He now lives out of a truck that's.... wait for it, not paid for! "There's one born every minute"
- foobarian 1y agoI mean... I guess he's been in new cars his whole life then? And he manages to come up with the money for it. Good for him? Wonder what sacrifices he made in other areas of his life as a trade.
- bigstrat2003 1y agoWell, it sounds like he's living out of his truck for one. That's a pretty huge sacrifice in my book.
- toomuchtodo 1y agoBecause it’s profitable even after losses, from some combination of origination fees and yield. (at least until the credit cycle turns)
- smileysteve 1y agoAnd repossession is relatively easy.
- cudgy 1y agoBut reselling them won’t be
- techjamie 1y agoIt only has to sell for more than the remaining cost of the debtplus repossession and storage cost. Unless someone defaults on their payments very early into their term or totally trashes the thing, this should be achievable more often than not.
- o11c 1y agoIt's in the bank's best interest to have constant revenue stream, even if that means destroying lives. Cars keep their value much better than, say, houses.
- Hammershaft 1y agoWhat!? Houses degrade but the land it sits on usually appreciates faster.
- bombcar 1y agoMaybe in silly-con valley. Around most places the land goes up very slowly, but the house’s depreciation is reduced by steady repairs.
- lotsofpulp 1y agoI can envision a future (maybe even the present in some areas) where increasing prices of skilled labor and/or materials results in a structure’s price increasing even though it is aging.
- binary132 1y agoI mean, the simple fact of inflation and urban flight during the covid spending bubble did indeed cause prices to go up quite a lot for many properties.
- bombcar 1y agoWe have something somewhat like that where structure prices ARE increasing for a number of reasons - including the cost to build a new one.
- Retric 1y agoThink in terms of banks not borrowers. Houses are a much better long term bet for buyers, but car depreciation is more predictable. Lend someone 500k to buy a house and during a recession it might tank in value by 20-40% while a bunch of people walk away. Worse the’ll likely pull out their equity before defaulting in mass. Cars value on the other hand is more counter cyclical. When the economy is bad people still get into accidents etc but they now want to buy used cars instead of new ones. Even better it’s just less money being lent out at higher interest rates.
- giobox 1y ago> I’ve seen some crazy stories on YouTube about people trading in cars they’re already underwater on just to finance an even more expensive one. This has happened for as long as there has been car finance (i.e. practically since the dawn of private vehicle ownership), it's nothing new. Given most folks cannot purchase a vehicle outright, the customer only really cares about the monthly payment, a sizeable amount of whom do not even understand the concept of being "underwater" on a trade in. The industry has always preyed upon the financial stupidity of most car buyers.
- bombcar 1y agoArguably cars became “unaffordable” sometime when loans became common - what percentage of cars being bought in credit can be argued, but clearly it’s become more and more.
- giobox 1y agoLoans appeared almost immediately alongside the invention of the private motor car (~1920 Ford/GM had to start offering financing on private vehicles to make them affordable), with 60-75 percent purchased this way in the 20s. Today its 85 percent - there wasn't really ever a period private car ownership didn't involve finance, at least in North America.
- bombcar 1y agoRemind me if I’m wrong but didn’t something dramatic occur financially in the 20s?
- intalentive 1y agoMoral hazard
- jncfhnb 1y agoSell the loan to someone else.
- deleted 1y ago[deleted]
- tamimio 1y ago> . I can’t understand why banks keep lending money for deals like that Because that's literally the only way banks make money. Cars, houses, whatever -banks are after the interest money. The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. The real money in this is the interest that the bank will take. This is why if all people decided to withdraw all their money, banks would refuse, aka a bank run. In fact, this issue -the credit creation with fake digital numbers in accounts for the purpose of making profits out of the interest- is the reason why house prices are going insane beyond their actual value, it’s never demand and supply.
- r_lee 1y agoI'd say the problem with house prices is that unlike with other assets, a regular person can go absolutely insane with the leverage on Real Estate because it can be used as collateral that is expected to hold value, thus interest is low and you can only put in a small down payment so mix in the "house prices always go up" and you've got a whole nation (world?) who are using housing as the ultimate get rich quick scheme all while leveraged quite a lot because hey, the prices will never go down so why not, it's a profit multiplier! And you pay the rent via the tenants who will always be out there to rent any property no matter what.. it's not like the economy will somehow suffer and people will be unable to pay that ever increasing rent right?
- thaumasiotes 1y ago> Because that's literally the only way banks make money. Cars, houses, whatever -banks are after the interest money. Lending for bad investments isn't a way to make money. It can work for the banks if they resell the loan, but in that case one thing they definitely aren't after is the interest money on the loan they no longer hold. > The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. The real money in this is the interest that the bank will take. This is why if all people decided to withdraw all their money, banks would refuse, aka a bank run. The reason banks "refuse" to redeem all of their deposits at once isn't that this would stop them from earning interest on their loans. (This sounds like nonsense, but I don't see another way to interpret your sentences...?) It's that they can't, because they are never holding enough money to cover all deposits at once. > The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. Also, this sounds like you're describing a loan from the customer to the bank. A deposit can indeed be modeled that way, but in context you appear to be talking about loans from the bank to the customer. Can you clarify this?
- deleted 1y ago[deleted]
- laughing_man 1y agoLong ago I had a girlfriend who was still paying on a Ford Bronco which had broken down. The repair was going to cost $300, which she didn't have. She was able to trade that car in for a brand new one without spending any money. It was literally cheaper (in the short term, of course) to buy a new car than to fix the old one. It was one of the reasons we broke up -- she was the type of person who counted the amount she could borrow as an asset. Banks keep lending money for stuff like that because they can repossess your car if you stop paying.
- potato3732842 1y ago>It was one of the reasons we broke up -- she was the type of person who counted the amount she could borrow as an asset. There's a joke about playing for the other team buried in there somewhere, lol.
- bb88 1y agoIt feels like musical chairs. The banks make money as long as the music continues to play.
- more_corn 1y agoWhen the music stops everyone rushes for a chair only to find there aren’t enough chairs for everyone. I’m starting to hear the music stutter.
- matheusmoreira 1y ago> I can’t understand why banks keep lending money for deals like that. Because if they ever stop lending the music just abruptly stops. The entire US economy grinds to a halt and takes the entire world down with it. Even just raising the interest rates is enough to provoke cataclysmic events that wipe out billions and billions of dollars overnight. I can't even fathom what would happen if banks stopped lending money. The US economy is so addicted to cheap credit it would rather forgive debts and bail out banks than let it all come crashing down. Debt is so pervasive, everyone is so thoroughly leveraged, that if there's too many defaults it would cause an endless cascade of further defaults that could threaten the entire economy. It'd take an act of god to fix this.
- 0xDEAFBEAD 1y ago>Because if they ever stop lending the music just abruptly stops. Banks are altruistic actors who generously prop up the world economy by lending to non-creditworthy buyers? That's a new one for HN.
- asa400 1y agoWhere in the text of their comment did they say that? The sentence you quoted doesn't have anything to do with the point you claimed they're making. And the GP is right: banks have to lend because the system is set up to use credit for investment, personal consumption, and to balance shocks. Doesn't take anyone being altruistic.
- matheusmoreira 1y agoFractional reserve bankers? Altruistic? Hell no. They are propping up the world economy though. They're not sitting on top of their cash reserves like dragons and their hoards. They are "efficiently allocating the capital" by lending at interest. That's the number one cause of inflation. They make it so there's so much money circulating it slowly becomes worthless. Someone needs a $1,000 loan. Bank issues it against some collateral. They grab the cash and spend it. Whoever receives that money deposits it at the bank. They keep $100 and loan $900 back out. It eventually gets deposited again. A significant fraction is loaned out again! Then it gets deposited again!! Then $1,000 turns into $100,000 literally overnight! Not one cent of it real until the loans are paid back, until somebody actually goes and extracts value from this planet! Exponential growth in a linear planet, it's unsustainable. The entire global economy is leveraged this way! It's not real until the loans are paid back! If people start defaulting on these loans, it's fucking over. People depend on those payments in order to pay back their own loans. Defaults generate more defaults which generate even more defaults, like a society level stack unwinding. Next thing you know the government is "injecting liquidity" into banks. If they don't bail out the banks everything come crashing down. We live in the age of CBDCs, of programmable currency. We have governments speaking of negative interest rates and expiring money to drive consumption. People have to keep consuming, they have to keep spending money. The motor of capitalism must keep turning. Otherwise the loans go unpaid and everybody gets liquidated.
- cadamsdotcom 1y agoCitation needed. There is no way to prove this is true or that if true it happened more than once (people get millions of loans every day, and once in a million per day is a tiny number)
- DaveZale 1y agoI use the Loud Muffler Index for judging the economy. Traffic gets louder when working people are under financial stress. It's easily measurable.
- tombert 1y agoI wonder if there's a way you could directly correlate this to profits. Like if you could buy or short VOO or SPY or VTI based on muffler noise.
- DaveZale 1y agohehe good question. But I believe that we are addicted to AI hopium at the moment. You know the drill, circular financing a la Enron, smartest guys in the room stuff. Your intuition will play out but there may be a delayed effect. Seriously I owned TSLA stock for many years. It was boring and frustrating, and I sold. So the Muffler Noise Index may be predictive of what happens years from now ;-)
- caterama 1y agoDisagree. Do you mean that vehicles gets louder because people skip maintenance? Or more stress produces more honking? An opposite effect: more financial stress means less spending on aftermarket exhaust mods means quieter traffic. Also, financial stress means less driving means less noise. Overall, I doubt you're going to find much signal in the noise!
- DaveZale 1y agoWell, it is a perfect storm of factors. First of all lack of maintenance. Secondly, people gunning it with the gas pedal. Thirdly, lower income folks in a rush to get to a second or even third job, gunning it for reasons other than just sheer frustration.
- potato3732842 1y agoIn large parts of the country mufflers rust off periodically. And people pay more taxes for the privilege (you don't think road salt is free do you?)
- decimalenough 1y agoIf only there was a country selling cheap, reliable electric vehicles with extremely low running costs.
- JumpCrisscross 1y ago> If only there was a country selling cheap, reliable electric vehicles with extremely low running costs The missing middle in discussions around Chinese EVs is import quotas (and disconnection mandates). Americans buy over 15 million vehicles a year [1]. Letting China export up to 150,000 EVs into America a year, subject to anti-surveillance measures (e.g. no phoning home), paid for by the importer and thus--ultimately--consumer, would not bankrupt American producers. It would, however, show American consumers what they're missing out on while increasing competition in the American car market. Hell, it might even give some stateside auto engineers some good ideas. [1] https://fred.stlouisfed.org/series/TOTALSA https://fred.stlouisfed.org/series/TOTALSA
- testing22321 1y agoSoon you’ll want Americans to know how good healthcare is in other countries, or that people in many countries get paid time off to move home , or that people in other countries don’t go into crippling debt for education. No, no. THAT is not acceptable.
- serf 1y ago>Soon you’ll want Americans to know how good healthcare is in other countries there is a difference between 'good healthcare' and 'available healthcare'. the US has some of the highest quality healthcare in the world to those that it is made available to. the worlds' most rich and famous come to the US for treatment -- and the poorest in the US are among the most plentiful medical tourists to Malaysia and Thailand. It's hard for foreigners to understand, but these two qualities are not mutually exclusive. The availability of healthcare is the favorite talking point of those with socialized medicine programs because.... the quality sucks. How many hundreds of NHS horror-stories are produced a year? Yes, it's great that they are given a card that says they have medical coverage. It's not so great to wait 6 years for a cancer treatment that is nigh useless by the time the scalpel touches the patient.
- decimalenough 1y agohttps://archive.is/HbX5O https://archive.is/HbX5O
- kristopolous 1y agoAnd yet automakers think that the smaller more affordable cars that do well overseas somehow have no audience in the US. For instance, the Geome Xingyuan is $10k, Hongguang Mini EV is $5k. Instead we have the average cost of a new car at $50k.
- decimalenough 1y agoIf they sold well in the US, they would bring in more of them. But they don't.
- eightysixfour 1y agoThis is the argument everyone was making for small trucks until Ford brought in the Maverick and demand was so high they couldn't keep them on lots. When they bring is right sized vehicles thay don't suck, we but them.
- kristopolous 1y agoIn the 1970s Detroit thought the Honda Civic was a joke as well. How could it ever compete against the Pontiac Astre or the Buick Skyhawk they thought...
- potato3732842 1y agoIt couldn't compete. Those cars were shit, just like the Chevettes they were competing against. It was all shit. All of it. The imports were typically slightly more expensive to boot. They sold well because you could get a Civic or whatever with a nice radio and they had a bunch of them on the lot in automatic and all the other things buyers cared about beyond just A to B because for the Japanese automakers shit was serious business and so they built their shit with some give-a-fucks included whereas to the Americans shit was a sideshow and they phoned it in and it was like pulling teeth to get a well optioned domestic that wasn't hobbled by the lack of some key feature or ergonomics issue. None of these were cars people wanted to be driving. The market for big nice fuel hogs shrunk and the market for compacts rose in it's place and the Japanese were very well positioned to put their ass in that seat when the music stopped.
- NDizzle 1y agoWhy more people don't keep their cars long term has always been a mystery to me. Sure, I had plenty of them in my 20s when I was young without a bunch (3) of responsibilities roaming the earth. But currently, counting my oldest kid's (19) car, we have 4. I don't worry about any of them. 2008 Land Cruiser and RAV4, 175k on one, 185k on the other. Both bought used. 2013 Sienna, bought new (with a huge discount) - 161k. 2022 RAV4 Prime, 55k, bought new. Zero car payments, zero upcoming 20k battery replacements in my future. I'll sell the Prime in probably 2-3 years for $30k (thanks, Toyota resale value) and get another reliable wife-mobile.
- johnnyanmac 1y agoNext to a house, a car is one of the biggest status symbols you can grab. Those people aren't buying Ford F350's because they need significant pickup and towing ability. It's the last bit of personal expression they have in life. Now that said: I own a 2008 car with 180k miles, bought used over a decase ago. and I'm really hoping I can ride it out another 2 years. I wanted to go FEV a while back, but then the market got rough.
- potato3732842 1y ago>It's the last bit of personal expression they have in life. Little of column A, little of column "jerks on the internet have these people convinced that using a vehicle anywhere near it's rated capacities let alone beyond them is guaranteed to end in a fiery crash" so they say "oh we might pop out a 2nd kid, better go with the CRV over the HRV" as if the latter can't do both fine. HN is very much complicit in this pushing of social norms in a direction where people feel like they're slumming it or behaving irresponsibly putting two adults and 3-kids in a 5-seater or towing something recreational with a half ton.
- johnnyanmac 1y agoI'll admit pickup trucks are a bit of anlow hanging fruit, but the behavior isn't unique to that kind of car. Sports car to live out childhood dreams, luxury brand to keep up with the Jones', simply seeing a new car and falling for the "0% APR" and all those other "deals".its all the same mentality being exploited. I don't really get the Overcompensation thing. Engineers are usually conservative when giving those ratings. I wouldn't necessarily push 4k lbs on a 3k rating load, but I wouldn't be surprised if true max load was in the range of 4.5k lbs.
- avdelazeri 1y agoIt's fine, in the future we will all subscribe to the self driving robot taxi, own nothing, and be (un)happy
- Simulacra 1y agoYou might enjoy this https://www.vice.com/en/article/one-star/ https://www.vice.com/en/article/one-star/
- coding123 1y ago[dead]
- gnatman 1y agoI was curious about the big spike in delinquency in the late 90s, turns out there was a big subprime lending meltdown in 97/98 too.
- x3n0ph3n3 1y agoIf you had to get a loan for a car, you already couldn't afford it.
- antinomicus 1y agoNope. This one out of all the comments in this thread screams out of touch tech guy. 80% of car purchases in America are financed. There are over 100 million car loans in America. Though in a more ideal world car loans should not be necessary, in this one, they very much are.
- monkaiju 1y agoJust because its necessary to get a car, which folks do usually need in our society, doesn't mean they can afford it...
- x3n0ph3n3 1y agoMost purchases being financed through debt isn't a compelling argument that people can afford the purchase. It's a highly predatory market for something that many people need just to survive.
- johnnyanmac 1y agoIsn't that the default? Even trying to fund a 4 thousand dollar beater may take a loan.
- crims0n 1y agoThat really depends on the interest rate. If the going rate is good (especially 3% or below), why tie up the capital in a car purchase when you can be putting it to work elsewhere?
- x3n0ph3n3 1y agoIn that case, you don't have to get a loan, but you do anyways.
- vjvjvjvjghv 1y agoI just read that the average price of a car is now more than 50k. People are insane to buy these with huge loans. There are plenty of very nice cars in the 20k-40k range but somehow people feel compelled to spend a ton of money on their cars.
- tzs 1y agoI've read that the average going above $50k for the first time in the US is largely due to two things: 1. There is enough financial uncertainty that many people are putting off buying a new car for now. The people most worried are also the people who would be buying one of those $20-40k cars. It's the upper end buyers who aren't being affected much by the uncertainty, so the average has gone up. 2. A lot of people bought EVs, which are more expensive than similar ICE cars, in the first 3 quarters to beat the end of the tax credits.
- monster_truck 1y agoShouldn't they have seen this coming when insurance premiums, rent, etc started shooting up? It's not just healthcare either. Used to be that you could winter paid off 'fun' cars at nice (live security, climate controlled, fire suppression, low risk zip code) storage units for the steep discount on the auto insurance. Where I'm at, the cost of units like this are up by >20%. The introductory rates at new places are minor and only good for 1-3 months. The insurance discount (which was previously as much as -35%) is gone because of the risk from increased tenant churn at the storage places, and the insurance is up almost another 20% anyways.
- colechristensen 1y agoEvery major market crash (except covid) was more or less the result of circumstances which should have been easy to see coming. The pattern of bailing out all but the absolute worst in these crashes means that the people taking the risk don't really care about the risk because a backup is expected as long as you're not the most irresponsible. You don't have to be faster than a bear to outrun the consequences, just faster than the scapegoat.
- UltraSane 1y agoPeople not being able to afford the cars they NEED to drive to their jobs is not a great situation.
- jeisc 1y agoa remake of repo man (1984) a great movie
- wbshaw 1y agoIf you think outright financing is bad, try leasing a car and then giving it back when they screw up the residual value estimate. Dealers will try to Jack you with every imaginable fee to get you to buy the car from then at the end of the lease. You also need to walk in the door with your own financing. Even if they give you financing through your preferred bank, it's not uncommon for them to juice the interest rate for some additional profit without any kind of disclosure.
- tzs 1y ago> You also need to walk in the door with your own financing But also check out what the dealer/manufacturer offers. Sometimes there are factors other than just the terms of the loan to consider. For example I financed my new car (2025 Hyundai Kona SEL Electric) through Hyundai because Hyundai was offering $7500 off if you financed through them. I could have gotten a better interest rate from my bank, but I'm going to pay the loan off early and even if I could have somehow gotten 0% from the bank it wouldn't have saved enough over the time I'll actually have to loan to come anywhere near matching that $7500 from Hyundai.