What is the no-sale auto auction, and why do we care as real estate investors?
The world of real estate is highly dependent on borrowing and the liquidity and affordability that banks and other major lenders can offer.
But banks lend in multiple areas. They have consumer credit. They have subprime credit. They have real estate credit, automotive credit, commercial credit, and on and on.
The auto industry, like real estate is highly driven by credit markets. During the pandemic, dealers were getting credit authorizations for all kinds of insane financing.
A buyer with no credit would get approved for a loan to cover 100% of the value of the car, plus the sales tax, plus an extended warranty, plus rust proofing and pre-paid oil changes. By the time the buyer walked off the lot they had signed paperwork for a loan at 130% of the car’s value with a $1000 a month car payment. During the pandemic when they were collecting their stimi checks from the government and all staying home, not paying their landlord, all was fine. Some realized quickly that they could not afford the car payment and asked the lender for forbearance under the emergency covid legislation to protect consumers.
So the auto industry is sitting on a ton of bad loans that were originated during the pandemic.
Much of this is not being reported to the public. It’s like a game of hot potato with bad paper.
One out of every four is 30 days late. One out of six is 90 days late. These numbers are worse than 2008. The default rate in 2008 was 14% for cars. Today, the default rate across all credit ratings is 13.56%.
Host: Victor Menasce