The Car Bubble is BURSTING - BAD | Massive Warning Sign.

now we need to do a deep dive into the

auto loan crisis that's taking over the

world and it is not good when you've got

subprime defaults that are now at a

higher level than pre-pandemic you've

got a massive crisis afoot and this

crisis could actually be giving you a

heads up of what's happening with

unemployment there's a massive leading

indicator that we're going to talk about

in this video keep in mind this video is

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right so the first thing that we have to

do is we have to understand what's

actually going on in the Autos sector so

first we know that uh payments for

vehicles have absolutely skyrocketed

thanks to growing interest rates but

it's not just that it's USA Today is

reporting that auto loan delinquencies

have surged all throughout 20 22 now

leading to a higher number of borrowers

defaulting other loads over 90 percent

of cars are bought with financing making

cars a very important aspect of a

consumer's finances ninety percent of

cars are bought with financing and all

of a sudden delinquencies of subprime

were skyrocketing then you know you've

got a problem building now card debt has

been accumulating and the situation is

getting worse at the same time as

average selling prices for vehicles are

actually falling now some are arguing

that wait a minute our price is actually

falling as there are some measures that

say prices are going up well this is

actually where things look even uglier

take a look at this post from the car

dealership guy he says so the mon the

Mannheim used vehicle index which shows

an increase in used car prices actually

tracks auctions it doesn't track what

people are are actually paying what that

means is that car dealers are paying

more for cars a lot more but the issue

is dealers are running into selling

these cars for lower prices they can't

get them sold so in other words you're

buying High selling low JD Power one of

the industry's main sources of vehicle

book values argues that Auto Lenders

rely uh or or rather JD Power is

something that Auto Lenders rely on for

vehicle collateral value have not made

any material adjustments to the upside

on car valuations so what's happening

basically is car dealers are paying more

money but they're making less money on

these valuations and car dealership guy

here says this has left dealers high and

dry without a profitable outlet for all

the inventory they just acquired over

Book value that's leading a lot of

dealers selling cars to Consumers at a

front-end law loss now a lot of people

talk about wait what's you know why

would a dealer sell a car for a loss

well here's why

you sell a car for a loss and then you

hope to make it up in the back end in

that financing office if you've ever

bought a car that's not a Tesla you know

how annoying it is that they sit you

down in that financing office and they

try to sell sell sell sell sell you they

make it seem like you have to sit

through the presentation because it's

legally required but it's just complete

BS they're just trying to make more

money off of you that's the way the car

dealership model works but anyway

speaking for myself the car dealership

guy here says our vehicle purchase price

has risen slightly risen but our average

selling price is barely budged so yes

the uh the the data that we're seeing is

accurate that in some measures prices

are going up but valuations are either

flat or going down and so this is

leading to pain because think about it

as subprime defaults are occurring and

used car prices are not actually going

up if anything they might be trending

down individuals who have a lot of

subprime Auto debt are likely facing

defaults and repossessions in fact the

repossession crisis that started mid

last year is only getting worse not

better Liberty Street

economics good Lord highlights that

young borrowers are struggling the most

with credit card and auto loan payments

a subprime loan is any loan made to a

borrower with a credit score of under

660. and delinquencies in the subprime

loan sector often lead to increases in

unemployment according to what what

charts by Morgan Stanley what we

actually happen to have exactly those

charts take a look at this piece right

here so this piece from Morgan Stanley

says implications of a recent of the

recent events on auto credit autos and

Consumer Credit are fundamentally

intertwined over 90 percent of Autos are

bought by a financial instrument our

bank teams noted that even before the

events of last week we expected net

interest margins to Peak at a lower

level than the prior cycle and move down

in Q2 2023 more deposit competition

longer term wholesale funding and less

duration risk slash more liquidity risk

means that margins will be lower for

banks that means tighter lending okay

tighter lending means even less loan

availability for people in the subprime

mortgage or subprime Auto lending Market

see it says here this won't be helpful

for Lending attitude now it's too soon

to tell what the impact will be on

demand and we should watch showroom

traffic but it's worth noting Bank auto

lending standards have already been

tightening for three months outside of a

Sharp pull vaccine into to 2020 they are

at the tightest levels since the survey

began back in 2011. now tight lending is

actually very recessionary when you

restrict borrowing you limit GDP that

can cause a recession that's the point

and that's why people like uh Jane Smith

an economist who was interviewed by uh

by The Wall Street Journal says the auto

loan crisis is a ticking Time Bomb if we

don't address it now it will have severe

consequences on the economy and the

lives of everyday individuals another

financial analyst argues the fact that

so many people owe Mower on their car

than it's worth is extremely troubling

we're looking at a massive financial

crisis if this trend continues so let's

also keep going with sort of this report

right here this report goes on to say

that the subprime auto delinquencies are

still above pre-covered levels sub Prime

delinquencies are at 5.2 percent higher

than pre-covered levels whereas Prime

delinquencies are below 0.42 percent the

difference here folks is a s let me see

661 credit score so you are a prime

borrower in cars uh with uh with above a

661 credit score thank you for shouting

out my oil call Limitless here says

Kevin props on the oil short call thank

you

a potential further pullback coincides

coincides with all-time high monthly

auto payments Rising interest rates and

substantial recovery and auto supply

this means it's bad to invest in vehicle

companies because tighter lending

standards and a recovery and Supply with

Rising interest rates makes it really

hard to see how companies like Ford and

GM could make money now that might be

different for a company like Tesla

because it's still so new it's a baby

going through the cycle if Tesla were

much more mature through this cycle it

would have the same problems

uh let's see here then we have what we

have here tightening Auto standards yeah

look at that look at that we are at the

tightest levels of Auto standards that

we've seen since 2011. yikes

uh that's definitely a compressive uh

for uh for a recession but also look at

this

this chart right here is really

interesting because it reminds you to

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that I like to use on a daily basis but

this chart actually says that year over

year changes in unemployment versus year

over year uh delinquencies so basically

what they're doing is they're taking the

yellow line and they're taking

delinquency rates and they're comparing

it to the unemployment rate the blue

line so look how weird this is watch

this

Auto delinquencies in the subprime

market Spike

before unemployment spikes by about

let's see here that's February

and that's about August

of uh the next year so about 18 months

so you have about an 18 month delay and

when you get a peek in Auto

delinquencies on subprime to when you

have Peak unemployment look at where we

sit now

slowly trending up it's even too too

early to tell if we've hit a creek on

those subprimes but it's a sign that

there is a correlation between

unemployment and auto loan delinquencies

which uh you know it's interesting that

one lags the other so much you would

almost think it's the other way around

that you lose your job and then you go

delinquent but it's actually Financial

stress first that seems to then get

compounded by job loss later

anyway uh obviously uh we uh you know

we're at an environment where uh it

makes sense to potentially stay away

from financing we already know that but

this was an interesting one because what

if rates go down right because there's

this idea that well what if the FED just

cuts rates will everything be fine again

well Cox Automotive actually did a piece

on this and they stated that changes in

the FED funds rate don't have a direct

and immediate impact on the auto loan

rates instead they do influence the

general direction of uh where auto loans

are going to go but the FED cutting does

not necessarily mean we're going to see

instant drops in car loans at

dealerships they could mean more profits

for dealers in the short term as spreads

widen uh they could mean uh they could

be offset by tighter lending standards

who knows but the point out of all of

this is to say hey the auto loan crisis

is worsening there's a reason why you

have subprimes that are becoming very

diff difficult to sell as bundles

remember how that works by the way a

company that does a bunch of subprime

loan like let's let loans let's say you

do about like 10 000 subprime model

loans a company that like like that will

end up wanting to sell their subprime

mortgage portfolio right look at this

title right here on Google

Santander halts 942 million dollar auto

subprime auto loan sale amid Market

turmoil yeah because obviously who wants

to buy subprime loans when we're walking

into an environment that's potentially

defaulting so you've got yourself a

disaster and there's a big reason why

you're seeing car repossessions explode

car repossession companies are probably

the biggest uh they've been NBC News

covered this pretty thoroughly in

December car repossessions are on the

rise as an awarding sign for the economy

yeah look at that now we're getting bank

failures Auto repossessions tumbled

after the pandemic but now they're yeah

because of all the payment forgivenesses

now they're approaching pre-pandemic

levels with some worrying that we're

basically going to far exceed

pre-pandemic levels anyway you could

sort of explore that that article uh

yourself but bottom line the auto loan

crisis is a disaster and as Morgan

Stanley puts it could be pushing us

towards that could good old recession

whether it's tighter lending standards

more defaults or unemployment it's a

disaster