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 brought to you by my programs on building your wealth.

Link down below coupon code that expires next a week for St Patty's a week and I Hope you enjoy that you get lifetime access and a price guarantee that there's won't be possible to get a cheaper price in the future. All 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 get Life Insurance within as little as five minutes. Linked by down below by going to Metcaven.com life or getting 12 free stocks with Weeble by going to Metcaven.com Weeble that's the stock app 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.