Shocking Update: US Auto Loan Crisis Spirals Out of Control! | Episode 1044

It's noon here on April Fool's Day, April 1st, and this is Courage Live with your hosts,

me, Ray, here in, where am I, VentureCity, and Zach, hanging out in Washington, D.C.

What's going on today, handsome?

Happy Wednesday, April 1st, everyone.

Thanks so much for tuning in.

Having a great day here.

Pops excited to spend half an hour with you.

We've got an update.

The US auto loan crisis continues the spiral out of control.

Interesting data that we're going to review today.

First things first, though, today's show is brought to you by CarEdge.com.

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Where to start this morning, Dad?

Actually, we're going to start right here.

Fewer auto loans were actually applied for last month, which is interesting,

but the auto loan rejection rate actually decreased.

Keep this in mind.

The number of people that got denied for an auto loan actually decreased.

That means more people are getting access to auto loans.

This comes on the heels of, and we published this about a month ago now,

the auto loan crisis just hit a 32-year record that this is the latest data that we have from

literally everyone that tracks auto loan delinquencies.

We're at a 32-year high for auto loan delinquencies.

People 60-plus days behind on their auto loans.

Then the interesting article that popped up this morning that I thought furthered this conversation

was CNBC getting in on the fund.

Nearly one in three car buyers are underwater on trade ins.

Analyst calls the dollar amount troubling.

This is the landscape we're in, Dad.

More people are getting approved for auto loans than ever before, lower rejection rates,

record-setting delinquencies.

We have never seen auto loan delinquencies like we have right now,

and more people are underwater.

If they were trying to get out of their car loan, aka sell their vehicle,

they're going to have to come with cash to the table or else they're going to have a deficiency

balance.

That's the lay of the land here, man.

That's what's going on in the car market.

Some of the pundits are saying, this is troubling.

That's the word we use.

I've got a better word.

Unsustainable.

I like that word.

Stupid.

Well, but if I may, Dad, before we go to stupid,

one of the things that's supporting this right now,

one of the things that makes this even theoretically tenable and feasible is the

reality that someone can get approved for a 120-month car loan, a 96-month car loan.

That's part of what's keeping this game of charades in motion.

Why am I got charades?

I mean, look at this, Dad.

It's not that hard.

Go Google search 96-month car loan, 120-month car loan, and you can find it out there, folks.

There is one way to keep the merry-go-round running, and that would be,

you just keep approving people for longer and longer loan terms.

Well, listen, we've seen that since the beginning of time.

And when I refer to the beginning of time, I refer to when I first got the car business,

which was 1977.

And at that time, if somebody came in and they wanted to finance their car, I don't recall,

and I've literally hand wrote the bank contracts.

Wow.

And I don't ever recall doing a contract for more than 36 months.

And the ones at 36 months were rare.

Most car loans were for 24 months, okay?

And through inflation and everything else and technology advances and safety advances and

how all that stuff costs money, so it adds to the cost of the car, as prices went up,

loan terms increased, went from 24 to 36 to 48 to 60 months.

And I remember when I got back in the business after I took that brief hiatus with the Gulf

USA store that we had in Mesa, Arizona.

And oftentimes when I was a closer at the Mazda Volkswagen store and people, you know,

when we would present numbers, we would never present a loan term, just a payment.

And people would say, well, how long is that payment for?

And I would, you know, it could have been for 48 months or it could have been for 60 months.

And I would say, oh, I'm assuming this is a 60 months.

No, but if you need longer than that, if you need to extend the terms to 72,

I'm sure we could make that happen for you.

And so it just became this whole concept of everybody's kicking the can down the road,

okay, where the prices are going to go up more than people can afford.

And people, the vast majority of people can only afford things on a monthly basis, payment-wise.

So we'll just keep extending the number of payments that they have to make.

Well, that makes the cars even more expensive and makes it harder for people to trade out of them

when they might like to. So it's beyond troubling.

It truly is unsustainable. I mean, most of these cars today that are built,

that you get a 10-year note on, 120 months, those cars won't make it 120 months, okay?

They just won't because so much of what's built today is pure unadulterated crap

that isn't intended to last as long as cars used to last.

So you put people in failing mechanical means of transportation

for a term that's longer than the useful life of the vehicle.

Here's the confounding part. Actually, I get it. So maybe confounding is the wrong word.

Concerning part. The most recent New York Fed survey that goes that we have more credit

applications, and this is not just auto. This is across the whole credit spectrum.

Credit apps have hit a three-year high and banks are slashing rejection rates.

This is across all credit products. So think about that for a second. We have the proliferation

and the storytelling from my dad of his four-decade career in auto.

Look at this chart at this credit union, dad. The lowest number of months you can even choose

is 36 months nowadays. You just said a moment ago when you started in the business.

It was 24. The shortest load term you could even get today is 36 months.

We are seeing credit unions like this one and others, and we know because we've looked at the

data before in the past, those that are being most aggressive on approval rates right now are the

captive finance companies, not even the credit unions, but the captive finance companies, Ford

Motor Credit, for example. But they're accepting more auto loans than before, and they're willing

to go up to things like 120 months, or in the case of Ford Motor Credit and other captive lenders,

approve more people with lower credit scores for those 0% financing offers just to move the metal.

This is a crazy juxtaposition, dad, of on one end, we have the highest levels of delinquency

we've ever seen. On another end, we've got the most approval rates and lowest rejection rates,

and in between, we have negative equity unlike we've ever seen before.

But here's the real point is that we have the highest level of delinquency in 32 years.

Yeah. So, if you're a bank and you are seeing delinquencies increase dramatically, what are

you going to do to offset those potential losses? I've got a great idea. Let's make it easier for

more people to put themselves in the same type of position that those delinquent customers are in

already. At least on the short term, it could look profitable. In the long term, it is disastrous.

You are just going to create more people with bad credit moving forward,

shrinking yet again the number of people who can actually afford to qualify for a car loan.

At a certain point, it's like 12 and 13-year-olds are going to qualify for a car loan,

because people with jobs are already overextended and they won't be pushing those people for

another car loan. Get your kid in the car. Let's bring up another topic that relates to this now

more than ever before. This is in Bloomberg this morning, Dad. Gas prices at $4 a gallon

stir anxiety in already slowing car market. Does that not put even more emphasis on what's happening

here with the auto loan crisis? The banks are the ones that ultimately enable these transactions

to happen, because most people do not pay cash for their cars. You have gas prices spiking and

you have a slowing car market, and so what are the banks incentivized to do? Approve more auto

loans to keep the merry-go-round going around. This, to me, is such an interesting moment for

the car market and for the car edge community, because if the car market does tank, which the

new car market is showing signs that it is very weak right now, obviously the used car market

is showing a ton of signs of strength. For the new car market, this could be for those of you

that have been waiting on the sidelines, you can time up a great purchase this year, because the

market has a lot of anxiety. Dealers have a lot of anxiety. Manufacturers have a lot of anxiety.

Banks have a lot of anxiety. They need to move these cars.

Customers have the most anxiety. Sure.

Customers who are already in car loans and the new average monthly payment was $805 a

month on a new car. If you've already committed $805 a month for your new car,

when gas was $3 a gallon and now gas is $4 a gallon, that's a 23% increase in the cost of fuel

for you. Suddenly, what seemed to be affordable at $805 a month when gas was $3 a gallon doesn't

seem quite as affordable when gas is $4 a gallon. Can we actually pause for a second then?

Monthly finance payments, we just brushed over the fact that we're up to $805 is the

average car payment, just the car payment. Holy cow, $805 a month, that's before insurance,

that's before fuel, that's before repairs and maintenance and we're not obviously factoring

in depreciation. Yeah, no, it is. That's crazy, man. No wonder you use car prices or skyrocketing

because people are looking for alternatives to an $805 a month payment. What the hell? That is so

expensive. Yeah, it is, which is why... $800 did use to be rent. Yes, I think my first mortgage

payment was like $750 a month. The thought of having to pay nearly $1,000 a month so I can have

the freedom to drive around whenever I want is so ridiculous. That is such an absurdly high

cost so you can have the freedom to drive. Get an e-bike, get a horse. It's astounding to me

that we can normalize this and we think that it makes sense because I don't see how it makes

sense. It won't be long because when we started doing nonsense like this, the average new car

payment was $500 a month or $550. It's up to $805. So what? A year from now, two years from now,

we're going to be talking the average new car payment is $1,000 a month. That's not normal

and that's not sustainable and people's incomes aren't increasing at the same rate as the monthly

payment to have this freedom to drive whenever you want to drive. So no wonder we have an auto

loan crisis. Sorry, I had to grab it, Dad. You said horse. What about this one? Wow. Is that me

on a horse? Oh, yeah, that was me riding to the rescue. Yes, yes. Oh my God. But yeah, Dad,

I think you're right. I mean, when we started this, average new car payments around $500,

$550 and now we're up to and we just casually acknowledge their $805. And so it is interesting

because again, for those of you that are looking for value, it might sound asinine for us to say it,

but look in the new car market because there's an oversupply of inventory. You can negotiate the

prices down, but still the floor for where these prices have gotten is crazy and unfortunately,

a lot of you are going to get approved for auto loans that you really need to look in the mirror

before you take on that debt and that responsibility. Just because you get approved by the bank doesn't

mean it's a smart financial decision. Finance managers tell customers all the time.

What's the line they use? You don't think the bank would have approved you for this loan

if they didn't think you could pay it back? They approve you for the loan with the hope

that you're going to pay it back, okay? You have to, as an individual, you need to understand what

it is you really can afford and what it is that you really need. And I've said this before,

what do you need as opposed to what you want? Typically, what you want is a hell of a lot

more expensive than what you need. So somehow, some way, just because a bank will say yes,

doesn't mean you need it or want it, okay? Just because the bank might approve you for a 900

dollar a month car note doesn't mean you should enter into a 900 dollar a month car note.

We are past the time in this country, in my opinion, as consumers.

To where we just buy what we absolutely need and quit overspending for all the crap we don't need.

For sure. And so, that might mean, in a nice way, telling automobile manufacturers what we need

and what we want are plain-gain automobiles that get us from point A to point B in an

inexpensive manner as possible. I don't need to ride around on a 100,000 dollar car to get

from here to the Acme. I do it in my $33,000 car. And the reality is, it would be cheaper if I just

used Uber. If I may, dad, it is trying to show up in terms of the slowdown. But again, the thing that

keeps the merry-go-round going around is the fact that rejection rates for credit applications have

declined and approvals continue as well. Of course, we've approved there are people

to put themselves in this financial bind. But we did get data on incentives for the month of March,

the month that just passed. And I will share this here. Ahead of the key spring selling season,

automakers flooded the airwaves last month with generous 0% financing and deferred first payment

offers to counter elevated interest rates and borrowing costs. Toyota pitched $5,000 off

on 22 different trim packages of the 2025 Tundra, which has a starting price of $4,185.

GMC dangled 20% off the sticker price on certain 2026 CR 1500 elevation pickups Hyundai and Kia

offered 0% financing combined with deferred initial payments on select models. Overall, dad,

we did see incentives increase on average $165 last month. So now we're at $3,325

in incentives. Now EVs, obviously, get treated a little bit differently. EVs,

you get over $11,000 in incentives for the manufacturer. So we are starting to see

incentives increase a little bit, at least the 0% financing.

Okay, that's great. Those are great numbers. We also know, as a matter of fact, that the

average asking price, the advertised price on dealer websites, increased to $51,500 some dollars,

which was up $750 year over year. So the fact that incentives went up a whole $165,

the buying public is still $500 or $480 in the hole. So you know,

what's that old saying? Liars, figures and figures lie. You can make the case when you look at the

stats as dryly as you just did. Well, incentives went up, but not nearly as much as the price of

vehicles went up. One is not offsetting the other. And so we're just getting deeper and deeper into

this hole that there is no escape from. Okay, you can't dig yourself out of it, either as a consumer

or when you look at the national debt as a nation. I mean, because the national debt's at $39,

let me say that $39 trillion. Okay, so I get it when consumers say,

oh, it's good enough for the country. It's good enough for me. We can all go bankrupt together.

I get it. If I may, dad, let's turn our attention to the month of March. We did get,

and we've started to get the sales data from various automakers. And look at this. Toyota,

Honda, Nissan, Mazda, Slide, and Kia were the only two brands thus far that actually

have posted record sales for Q1. So let's just start here, dad. Toyota sales down, Honda sales

down, Nissan sales down, and Mazda sales down. That's an interesting group of four. You know,

some you might expect to have sales declines. Nissan, for example, but Toyota, Honda, and Mazda

all seeing sales declines. That's a little bit shocking to a degree. And again, indicative of

the broader challenges that the new car market is facing right now. And the truth of the matter

was Hyundai and Kia sales were down for the same month. But up for the quarter still. But up for

the quarter. And a lot of the manufacturers were going to be down through the first quarter of

this year, because in the first quarter of last year, there was a huge spike in sales in March,

in anticipation of the tariffs that were going into effect in April. There was this huge pull

ahead purchase from people that would have been buying in April, May, and June, that suddenly

bought in March, because they were afraid that there were going to be price increases on what

they were considering buying. That's a really good point. So naturally, because of that, because of

the artificial increase in sales that we had, and we'll see this again in September, because of at

the end of the year, because of the EV incentives going away. But even saying that, sales are down

significantly. And I believe significantly more than what pundits had been expecting.

And in my mind, it's a confluence of so many different things. A, that the average asking

price keeps going up dramatically. B, that the long term keeps getting extended. C, that the

average new car payments $805. D, that gasoline has crossed the Ford Hour Rubicon nationally.

And there's just so much uncertainty in the world that less people feel comfortable about

making major purchases. But Dad, I do think that will, I mean, you keep me honest here, that will

mean more inventory sits for longer. And as more inventory sits for longer, we will see even more.

0% financing offers, even more deferred first payment offers, even bigger dealer discounts.

Like this is not an ironic comment in the chat of, are any dealers selling new cars for 50% or

more discount? I mean, some Maserati dealers are what, at 30%, 40%? I mean, you're not going to

see Hyundai with a 40% or 50% discount, but I mean, seriously, Dad, we are seeing like Maserati

dealers offer online advertised prices, 40% below MSRP. We've got General Motors incentivizing one

of their trucks, that was supposed to be the big best new thing, 20% off just from the manufacturer,

not even including dealer discounts. So, the market has shifted for the new car side of things

significantly. And if we do see sales continue to slide, regardless of why they slid,

it's pressure on these manufacturers to figure out ways to sell those vehicles.

No, no, I agree with that. But there's just so many factors that nobody thought of at the

beginning of the year that are playing out right now. And I know people go, yeah, but we produce

so much oil in this country, we do. It's the oil that we need for the rest of the world,

where they're going to get it, which is why the price of gasoline has gone up.

Yeah, gas-climbing oil in this too. Yeah, of course.

Yeah. And so, we weren't confronted with that uncertainty eight weeks ago.

And so, I just think when there's this much uncertainty, it's hard for people to make a

commitment to spend big sums of money. It's just, you know, I don't spend a lot of money on watches,

but I buy a lot of watches, as you know. Yeah, you buy cheapo watches. You love them.

Well, you know, they're cheap to me. They could seem relatively expensive to others. But, you know,

in my world, you know, somewhere between four and a hundred, a thousand dollars is a relatively

inexpensive watch. Oh, I was thinking about the cheap ones you buy, like the $50,000 and $100

ones. But, okay, well, I have a few of those, but my point was going to be, I haven't bought a watch

in probably five or six months. Wow. Okay, I am trying to discipline myself when it comes to

buying things I don't really need. Okay, I have 48 watches. Do I really need another? No, I do not.

Okay, absolutely. So it's just like, yeah, but it looks good and I like it. I think I should

buy the damn thing. And then this guy on the other shoulder goes, no, you shouldn't. Okay,

it's going to cost you more just than batteries for these watches. So my point is that even somebody,

like myself, who they're not hugely expensive purchases, I have had second thoughts and

arguments with my, and I have, and I believe me, I have seen any number of watches that I go,

oh, that's interesting. Oh, that's a good looking watch. And I haven't pulled the trigger on any of

them. And because there's just too much uncertainty. So if I won't buy a watch,

well, there's got to be a few people out there going, I can't afford to buy a car

when things are like this. I think you're spot on, Dad. I think a lot of that is happening

in the market right now. Let's turn here, Dad. Let's go to the chat. Thank you, Jagannishi,

we appreciate it. Why haven't we seen General Motors ads poking fun at Solantis and Ford

recall numbers? Here's one I thought of, enjoy your vehicle, not your dealer. Good pops. Dad,

do you think we'll see some of these automakers start to take some shots at all the recalls?

No, because each one of these automakers has their own issues. Okay, General Motors has their

issues with their 6.2 liter engines. So no, no, it is, there are certain things that are off

limits. Okay, there's that old saying, you don't want to poke the bear. Yeah. Okay, so yeah, Ford

has had a poop ton of recalls. Well, we feel bad for Ford, and we're not going to poke fun at them,

because, you know, suddenly they'll poke fun about our engines just blowing up when you're

driving down the highway. So no, there are certain things in business that are off limits.

I believe that would be one of them. I think you're on to something there. I think they're not

going to touch that, because they know they've got their own problems in their own.

From Jim, Dad, this is a great question. Where do all the 2025 new vehicles go auctions, or do

dealers keep them in the back? We've been talking about unsold new cars for a while now, because

we've got leftovers, lots of leftovers. Some of them like yesterday we saw are being turned into

certified pre-owned used vehicles. Others, dealers are still trying to sell them. So help us all

understand that. What happens with all these leftovers? We saw about 300,000 leftovers out there.

Here's the deal, and I know there's people out there that believe that there's just

fields in the middle of the country where dealers send their unsold inventory and just let them

rot. Here's the deal. Once the vehicle is invoiced to the dealer, the dealer bought it, okay? And

the dealer has to turn that obligation into cash. It's their responsibility to do that.

How can they do that? Well, the hope is you'll sell it to a retail customer. If you can't find a

retail customer and you keep trying, trying, and trying, well then perhaps, like some dealers do,

you move stagnant aged new vehicles into your used car department, and you take what's known as a

write down, and you lower the cost of it so that you can now sell it as a used car. Or you might

take it to the auction and sell it there. Even though it has no miles on it or very few miles on

it and it's never been titled, you can take it to the auction and it gets sold as a used car.

And then whoever buys it, it's their responsibility to now figure out how to turn that into cash. Or

you just might deal or trade it to another dealer and you start fresh with their aged stuff and they

start fresh with your aged stuff. But eventually, every last one of these gets sold. They're not

going to a field somewhere to rot because that business model don't work. I mean, it does seem

to me for some of these dealers who've been sitting on cars for hundreds of days. But yeah,

eventually, all these vehicles get sold. Yes. Yes. Let's call it a show pops again if we can help

you out with anything, caredge.com. I'm actually even wearing my t-shirt today. If we can help you

buy a car or sell a car or all that fun stuff, please give us the chance. We've got the car

buying service. Yeah, please take a look. And Dad, enjoy your afternoon and let's come back here

and do it all again tomorrow. Yeah. You know, yesterday, we had sunshine and relatively warm

temperatures here at the shore. And so I actually sat out on the balcony yesterday in the sun a

little bit, but it was a tad bit breezy. Today, it's supposed to get up to about 66, 68. So I

don't know. I might have a little more color in my face tomorrow when you see me. Nice.

Today, yes. Wear your sunscreen even though I know you won't. I'd have to have sunscreen to wear it.

And Danke, 9340 Dancy wants to know, coughing update. It turns out that I had a mild case or I

have a mild case of bronchitis. And I am on various and assorted medications. And I am starting to

feel better and coughing less. So there you have it. Thank you, Dad. Thank you.

All right, folks, if we can help you out, CarEdge.com. Otherwise, we'll see you back here tomorrow.

Love you, Pops. Love you too, handsome. Thank you, everybody. See you at noon Eastern tomorrow.

Shocking Update: US Auto Loan Crisis Spirals Out of Control! | Episode 1044

About this episode

CarEdge.com

auto loan rejection rate

auto loan applications

auto loan delinquencies

underwater

120-month car loan

96-month car loan

24 months car loans

inflation

Ford Motor Credit

approval rates and lowest rejection rates

create more people with bad credit moving forward

23% increase in fuel cost (gas $3 to $4)

depreciation

average new car payment

monthly payment

what do you need vs what you want

0% financing

Toyota Tundra

sticker price

year over year

Honda

Kia

Hyundai

EV incentives going away

sales are down significantly

Wrangler Rubicon

MSRP

pressure on these manufacturers to figure out ways to sell those vehicles

General Motors

off limits

poke the bear

write down (price reduction)

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