Auto Loan Delinquencies WORSE than 2009!

They're skipping car payments. That's

the final warning sign. Forbes article.

The headline says inflation is easing

and jobs remain strong. But consumers

are skipping car payments. The Fed

claims to be data driven. But if you're

watching behavior, not just

backward-looking numbers, the signals

are showing. Last month, mortgage

delinquencies were rising fast. The

piece resonated because it cut through

the noise. By the time the official data

confirms it, you're already missing the

boat. Now we're seeing it again, except

in auto loans. Delinquencies, especially

amongst subprime, are spiking. This

matters. People will skip everything

before they lose their car. That's how

they get to work. If you're missing

payments now, the strain is already

severe. The Fed says it's data driven,

but when consumers start skipping car

payments, there's no rounding error.

It's a flashing alarm. Lending Tree

reports that 5.1% of Americans are now

uh delinquent on auto loans with 2% 30

days late and 1% over 90 days late.

Let's look at that article to see if

they give us some history. Southern

states have the highest levels of

delinquencies with Mississippi borrowers

having uh 9.8% of Mississippi auto loan

borrowers having at least one delinquent

account. Wow, that's crazy. uh four-way

tie between Alaska, Utah, Washington,

and New Hampshire with the lowest amount

of delinquencies. Highest being

Mississippi, Louisiana, Georgia. Younger

generations are more likely to struggle,

including Gen Z's.

Some here are the highest delinquency

rates, all in the South.

Uh here are the full state rankings. Gen

Z out of all of them have the highest

delinquency rates. And the delinquency

rates are tied to higher monthly

payments, which makes sense given that

obviously you have uh higher interest

rates in today's environment. What about

let's do auto loan delinquencies and

let's go St. Louis Fred. Let's see if we

could look at a history over

uh time and we'll go for an autos look.

So loan vehicles,

let's see effective finance rate. We

really want delinquencies,

which is a little unfortunate because

they don't actually make it that easy to

find. Here we go. Delinquency rate on

No, I think they got rid of it.

Delinquency rates on credit cards,

single families, consumer loans, all

loans. I guess we could look at all

loans. I'm just surprised you're not

seeing autos separated out. Sometimes

they get rid of some of these and then I

always sort of scratch my head like,

what are y'all hiding? Uh but uh across

the board delinquencies, you know,

certainly up a little bit from the lows

that we saw in 22 postco, but uh nowhere

near the spikes that we saw during the

recession of 2008. Though note those

delinquencies went from 1.79%

to 3.1%

in a year

and after 2 years 6.15%.

2 and 1/2 years 7.4. 49. So they could

really spike fast likely in a recession

when you combine job loss. So it's sort

of more telling that you've got this

early kind of sign showing up of these

delinquencies rising because then add

into the mix a little bit of

unemployment and you get this sort of

spiral that takes off. Strip out the

noise and focus on the fact subprime

auto delinquencies have surpassed the

2009 levels reaching a 15-year high.

Well, 15-year high would be 2010, right?

Okay, they don't actually even link

their source there. Experience shows

that 30-day delinquencies have jumped

nearly 40% year-over-year in the lowest

credit tier. So, that could be like 1%

to 1.4%. Even prime borrowers are

falling behind. That's bad.

Uh, Fed reports auto loan balances have

crossed 1.6 trillion with an average

monthly payment of $750. $750 a month

for a car.

This isn't just about subprime. The

whole credit stack is starting to creek.

Borrowers with decent credit are feeling

it. Leasing costs have surged. Used car

values are correcting and loan to value

ratios are upside down. Borrowers are ow

owe more than their cars are worth.

Yikes. When consumers start missing

payments, they're already making hard

tradeoffs. That's what makes this

meaningful. You don't default on your

way to brunch. You default when the math

stops mathing. Basically, this is how

credit stress evolves. It starts subtly.

A missed payment, a late auto loan, then

it compounds. First cards, cars, then

homes. Right now, we're squarely in the

middle of that curve, and most investors

are still pretending that the surface is

calm. Wow. Every cycle follows the same

patterns. Investors chase the headlines.

GDP surprise, non-farm payroll beats,

CPI revisions, while the real signals

sit quietly in the background.

While someone skips a car payment, it's

not forgetfulness. It's not noise. It's

a signal. The person is already juggling

missed car card payments, overdue rent,

maybe a utility shut off. Skipping the

car, the last thing people give up is a

forced decision under stress. And that's

where the cracks start. Behavioral

stress shows up long before it hits

earnings, guidance, or credit spreads. I

mean, that's fair. By the time

management mentions it on a call, it's

already in motion. If you think if your

model assumes steady repayments, they're

wrong. If you think consumer credit is

contained, it isn't. Behavior breaks the

model. Quietly, early watch behavior.

Anticipate dislocation. Don't wait for

the narrative to catch up. Interesting.

All right. Well,

what are they thinking? This person

thinks uh uh short-term repricing of

some lenders

and then he kind of gets into a

different article on lenders. That's

fascinating. I mean it is it is a you

know an argument to pay attention to

though broadly these delinquency rates

on all loans aren't moving up. Let's try

to look at some others meaningfully at

least there. Let's go to delinquency

rates on consumer loans

and let's do business loans

outside the largest 100 is a normal way

to look at it. So you can see the

underlying delinquency rate on consumer

loans all commercial banks. We could

look at that and let's try and similar

to what we've already pulled up.

Delinquency rate on credit card loans. I

think we have that. So these are credit

cards. We've seen we've ticked up over

20 I mean well over 2019 2018

levels well over these levels. We're

sort of leveling off around 3% on credit

card delinquencies.

Delinquency rates on other consumer

loans. This one's spike in a bit.

And these spikes are in fairness often

associated with a recession. But look at

the soft landing in the '9s. Shows up

again.

Here you have business loans relatively

stable in line with 2015.

Here are all consumer loans.

I mean, this one's not great. Kind of as

high as you were in 2008. So, that one's

not good.

And last one is is basically everything

together, which we've looked at before,

which hasn't really meaningfully moved

up yet once you put everything together.

So, little bit of a red flag, but how

much of a oh no, run for the exits. Is

it might be too soon to tell. I guess

something you might consider doing is

look at someone who holds or sells a lot

of car loans. Look at like a Carvana.

You know, they did a great recap when

they burned their bond holders, took a

big haircut off bond holders and really

saved their shareholders. Uh, and then

it was up from there. They turned to

profitability. Really impressive. But

what you could do is let's look at their

margin Carvana

investor relations and let's see if

there's any hint here about that

consumer stress.

So first quarter

we'll get our tables here. Okay, here we

go. Net income

I net income has exploded when you look

at their net income year-over-year. So

this isn't useful. Let's try to get SEC

filings here.

uh SEC filings

and let's go for the quarterly

or we could get an annual if we have

one. See, we have that March report and

then when do we have an annual?

Annual report was Feb.

Oh, those are tight together.

Feb 19th. Oh, this is No, I'm sorry.

This is May 7th. Yeah, there we go. May

7th on the quarterly. Perfect. Let's go

talk to take a look at their margin and

see how it's doing here.

So, here's Carvana

and we have

okay net sales operating revs at 4.2

billies gross profit 929. Gross profits

exploded. I mean, that's more than a 50%

move in gross profit. It's actually a

lot more than 50%. Where did Ella drop

my calculator? Hold on. Yeah, always

blame the baby. All right, so we've got

929 divided by

591. Well, the appetite here is

obviously huge. You got a 57% growth

in gross profit, which is very

impressive.

And you've got actually net income

coming down 216 bills. Oh, these are

billions. So, correction, that's 4.2 2

billion in sales relative to the three

billion in sales last year leading to an

explosion in net profit. I mean what are

they up 28% on revs? Total revs

are up 38%. But their gross profit is up

57%. See these are pretty good numbers.

And how many of their assets are,

let's see, beneficial interest and

securizations, vehicle inventory,

finance, receivables held for sales or

held for sale. These assets right here,

if they just dump these receivables to

other companies and let other companies

hold the car debt, that could be smart

because then you're not the one holding

the bag if customers go delinquent.

Although a lot of these car loans are

written so expensively that it doesn't

really matter if they go delinquent, the

lenders still make money uh you know

until of course the entire economic

system starts fall failing because

people can't go get another loan

somewhere else. Usually subprime auto

borrowers bounce from subprime borrower

to subprime borrow or lender. They go

from lender to lender and then once they

sort of burn one they go to another and

ask for a second chance. And it makes

sense. Like if you're broke, like what

else are you going to do? Uh you got to

try to survive.

So take a look at this

and go to the link. Let's see if they

even mention it. No, not a single word.

What about consumer?

Business model offers value to

consumers. If consumer credit gets

worse, that's priced in. Everyone else

sees the same thing. Yeah, I mean that

seems a little copy. I have to say

generally speaking, we're in a

competitive market. Everyone else sees

the same thing. If consumer credit gets

worse, that's priced in. If interest

rates go up, that gets priced in. If car

prices go up or down, that gets priced

in. Basically, they're like, "No harm

can happen to Carvana. We're good."

Uh, okay.

pretty uh cavalier attitude there.

But I mean, good for them.

[Music]

Our economics have been very stable.

Yeah. As you have more cars, the odds

that a customer finds their car they're

looking for goes up. That's true. You

also you can sort of get the network

effects of Carvana.

So, pretty impressive for a company that

almost went bankrupt.

Not bad.

Shows you a big uh

sort of duality to this auto loan

delinquency side. Carvana doesn't care.

Carvana is doing just fine. So maybe

that's uh that's not an indicator

especially since you know companies like

a firm hold on to more debt uh BNPL debt

at least. And you're not really seeing

signs of credit stress over here. I

mean, sure, it's not like what you had

in 2021, but look at this recovery since

uh 22 from an $8 stock to 65 bucks. Uh,

you know, knocking on the door of $70

over here. Pretty impressive.

>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Papra there, financial analyst and

YouTuber. Meet Kevin. Always great to

get your take.