If you’re like me and your various internet algorithms know you read about cars a lot, then you’ve probably seen news stories about a “surge” in car repossessions. Most of them like to say that car repossessions are “surging” or “exploding” to convince us that the world is falling apart, but I’m not convinced things are as dire as they say. Don’t get me wrong, there’s a high likelihood that repossession numbers are higher than usual, but I’m not sure the hyperbolic language they use is entirely called for.
As far as I can tell, the numerous articles out there from sites like CBS News, Jalopnik, Consumer Affairs, and others are all rooted in a single story from Barron’s. As long as that initial story was completely accurate, that’s all well and good, but it’s hard not to wonder when the Barron’s story was titled “Car Repos Are Exploding. That’s a Bad Omen.” So let’s take a look at just how many repossessions are actually on the rise at the moment, as well as why that might be happening and whether it’s actually cause for concern. I’ll try my best not to talk about things surging, exploding, or annihilating as much as possible.
The Source and the Stats
Any time I see a news story online, I do two things: I look at the page it’s coming from, rather than just the headline or the content, and I look for the source that page used. So if I see a news story like, “Car repossessions are surging––a troubling sign for the used car market,” I want to know who’s saying that. In this instance, that headline came from CBS News, which is a pretty reliable source; so far, so good. Once I’m looking at the story, however, I want to know where they got that information because these days, news outlets typically just report someone else’s work, usually the Associated Press (AP).
In this instance, however, the story isn’t coming from the AP. Their source is a senior writer for Barron’s––another news outlet. For the record, Barron’s has been around for over 100 years and is definitely a well-established source of information, particularly financial information. But this isn’t a news outlet that’s necessarily concerned with things like the auto market specifically. They’re looking for anything that can be used to interpret the future of stock markets and finances in general so they can give their readers information to use when making investments or planning their financial futures.
According to Barron’s, there are two things happening: defaults on auto loans leading to repossessions have doubled for prime borrowers (those with good credit scores), and a growing number of defaults are from loans taken out in 2020 or 2021. Another story from Jalopnik indicates that subprime repossessions are up 11% since 2020. Between these two stories, we get a picture that repossessions overall are seriously on the rise. Of course, it should be mentioned that the doubling of prime repossessions means an increase from 2% to 4%––while it’s true that it doubled, I wouldn’t call that “exploding.”
Are There Other Sources?
My real issue with all of these stories is that there aren’t more sources for this report or sources for where this information is coming from. The Jalopnik article stating that subprime repossessions are up by 11% gave no source on that number––they simply stated it as fact. Furthermore, they also referenced that Barron’s article about repossessions being up overall; the Barron’s article similarly fails to provide a source for their statistics. I’m not saying either news agency is making things up––I’m simply unimpressed by their lack of a source for their stats. Other agencies like Kelley Blue Book (KBB) are excellent at providing where their information and stats are coming from, yet KBB has not covered this story.
I’m notoriously skeptical when someone provides me with information they can’t actually support with specific data or statistics from a known source. Again, this information could absolutely be accurate, but there’s no way to verify it because the sources simply seem to know the information. It’s also worth pointing out that news articles scaring us about repossessions are nothing new. I found a story titled, “Here come the COVID-19 car repos,” from November 20, 2020. So while repossessions could be on the rise, I’d say you don’t need to freak out about it unless you’re at risk of defaulting on your auto loan.
Why Would Repossessions Be On the Rise?
The premise of the articles I’ve seen lays the blame for the purported increase in car repossessions on two causes. First, of course, is Covid and the aftermath of the first wave of the pandemic that we’re still dealing with. In particular, throughout 2020 and into 2021, people received stimulus checks and other financial support to help with layoffs, businesses shutting down, and other issues. While a lot of people were suffering, there were quite a few folks who did just fine throughout the shutdowns and actually had extra money. It’s those people who may have overleveraged themselves on vehicles they really couldn’t afford, and when the assistance dried up, they found themselves unable to keep making their car payments.
Second, car prices have become absolutely insane over the last 18 months or so. This is a point that’s undeniable and backed up by numerous sources. KBB reported in July that new-car prices hit a record high of more than $48,000 on average. Meanwhile, the average cost of a used car has been over $28,000 for a few months now, according to KBB, and monthly car payments averages hit a record-high of $730 in June! Those numbers are brutal, and there’s no denying it or running from it, so if repossessions are on the rise, it’s likely because life has become expensive.
What Does This Mean for You?
There are a few things to unpack with these recent headlines. For starters, just remember that news agencies love to use incendiary language to get attention, so it’s best to learn to overlook those exciting verbs and focus on the actual information. In this specific instance, keep in mind that the main source for these headlines is an agency whose primary interest is investing and financial news, not car news. They’re looking at repossessions to use that information to predict changes or general market behavior and make investments, so unless that’s something you’re trying to do, don’t worry about it too much.
One thing you should worry about is that cars are ridiculously expensive right now, especially new ones, so don’t start shopping for one unless you really need it. Even more importantly, make sure you pick a car that you can actually afford, not just today, but for several years to come. You shouldn’t try to budget around a car payment that takes up 50% of your income because you will fail spectacularly. All of your monthly necessities should account for about half your income, with car costs only taking about 15% of your monthly income.
Finally, if repossessions are on the rise, then this could cause a bit of a boom in the used car market with increasing supply, which might bring prices on them down. Whether this actually happens or not will remain to be seen, but if you already wanted to shop for a used car soon, then this is definitely something you should be keeping an eye on. If car prices do start to come down, then demand will likely respond because a lot of people are waiting for it to happen, so it might not be an immediate and long-lasting relief, but at this point, anything is a boon.
