The Auto Loan Crisis Just Hit a 32-Year Record & Here's What It Means for Car Prices | Episode 1012

It's noon here in the city of New Jersey,

and this is Courage Live for Monday,

February 16th, President's Day, ladies and gentlemen,

with your host, me, Ray, in my condo,

and, well, my handsome son, Zach, in my condo.

Well, go figure, who knew?

Oh, he's rolling me in, ladies and gentlemen, here we are.

Father and son, what are we talking about today?

We're talking about so much stuff today,

the auto loan crisis just hit a 32-year record.

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That's all out of the way.

Oh, well, but you said it's in data.

Now, you know, there are many people out there

that have high blood pressure

and they take beta blockers.

Will they be able to utilize the beta version

even if they're on beta blockers?

This is the type of insight.

You come to caredge for folks.

All right, Dad, let's turn our attention here

to the 32-year record that was just set.

You ready?

Yes.

Also, I just want to pull this up here.

Radon says, I cannot see the worksheets.

We are adding, what's it called,

to block the personal information.

Redaction.

We're adding redaction on the outdoor worksheets.

That'll be back up soon.

So you can actually view the original OTT worksheets.

Subprime auto loan, 60 plus days past due delinquency.

This comes from Bill Blug over on LinkedIn.

Great content from him.

January 2026 starts the year with a 385-month record high

from January 1994 to January 2026.

Delinquency heat map covers 385 months.

You ready for this?

Yeah.

The heat map reflects subprime, bottom heat map is prime.

No issues with prime auto loans

in terms of serious delinquencies.

Green equals lowest delinquency rate

for specific months across multiple years.

Red equals highest delinquency rate, excuse me,

for specific months across multiple years.

Yellow is the midpoint.

You ready for this?

Yeah.

Here is your subprime 60 plus days delinquency chart.

What do you see on the chart, Dad,

when you're in 2024, 2025, but now it's starting 2026?

A lot of red.

Yeah.

It's like we're on fire.

We're on fire.

Yeah.

This is those that are subprime credit.

This would be your prime credit.

Now, what do you see with prime?

It was back in 1995 and 96, the year I was born,

that the prime credit market was not doing so hot,

but now it's fine.

Yes.

What the heck is going on, Dad?

We have a 32-year record now.

For subprime 60 plus day auto loan delinquency.

Explain to us what auto loan delinquency is.

Explain to us why this is so concerning.

This thing's been red now for three.

We're coming up on the fourth year of it being red,

being at the highest levels.

Well, delinquency is when people fall 60 days behind

on their loan payments.

60 days or more.

Yep.

And typically, once you hit 60 days,

banks consider the possibility of repossessing the vehicle

and then taking it to an auction and selling it

and recouping whatever they can.

But this is scary in the sense that we know people

with good credit are handling their credit obligations well.

We can look at this and we can see that people

with subprime or bad credit have been struggling

for three going on for years,

and it is becoming increasingly more difficult

for them to handle their current credit obligations,

which would indicate to me that they are stretched

to the max and beyond.

And we know, because all the data points to it,

we have extended loan terms,

more available access to credit,

higher levels of negative equity,

but higher levels of loan to value ratios.

We have, I continue to go back to it frequently,

Wells Fargo last year piloting programs

at 140 plus LTV for those that had 500, 600 credit scores.

You have a bubble right now,

and I know we use that word fairly liberally,

so please stick with me for a minute.

What more clearly do you need to see

that suggests there's a bubble going on?

What is it, Carvana?

It's got to make $100 of income a week

to be able to get approved for an auto loan?

Yeah, it was $5,000 annual income

to qualify for an auto loan.

And guys, what are we seeing in all of the data,

which essentially what this delinquency data is,

is it is at a minimum a 60-day rear view mirror perspective?

Because it's sure you, accounts that are more than,

so it's looking in the rear view,

it's saying decisions that were made in the past,

I don't know, two months or greater,

so over the past few years,

have now led us to a situation where this chart shows it,

we have a 32-year record high

for our current subprime loan crisis in the United States,

and what insinuates or suggests it's going to get better?

Again, access to credit's easier than it was before,

loan value ratios are higher than they've been in the past.

The credit worthiness of customers continues to decline,

but they're getting approved for longer and longer.

Like, this is bubble territory.

It makes you wonder why anybody that buys asset-backed securities

would jump on buying the asset-backed securities

from, say, someone like Carvana,

where we know that the vast majority of their bank contracts

are subprime.

Why would you run the risk looking at the stats

as we have them, looking at that chart,

and go, yeah, let's buy that stuff.

I mean, what could possibly go wrong?

We are at a 32-year high, and yet it doesn't set off alarm bells

to Wall Street sometimes, and you have to wonder why and how that is.

Well, doesn't it keep the merry-go-round going around?

Yeah, but at a certain point, the damn thing's going to break down.

Isn't that what this starts to suggest?

What happened?

Actually, walk us through this, because I wasn't around for it,

but you were obviously selling cars then.

Why was prime auto loan delinquency so high in 96 and 97?

What was going on then?

You know, I don't remember.

Yeah, I really don't.

I mean, there was a tech bubble that burst.

But that was a little bit later.

That was closer to 2000, wasn't it?

Yeah, I thought so.

I honestly don't remember what was going on in 95 and 96 that would have caused

prime borrowers to have so many issues.

It just was obviously well before the Great Recession.

Let's do this then.

There's a comment section on this post that's actually in our industry.

For automotive professionals, this has gone fairly viral.

Yeah.

There's 200, and what was it?

240 likes and 41 comments and 26.

This is getting a lot of attention by the industry, and with good reason.

As well, it should.

So let's see here.

Seth actually asked the author, Bill, so let's see here.

I think, but I'm not 100% certain, in the mid 1990s,

high prime delinquencies was driven by fact.

Subprime auto loan activity was just emerging in large scale,

and the significant subprime disaster of that time was bleeding over into prime.

Below image shows the January year-over-year 60 plus day delinquencies

segmented by prime and subprime used to create the heat naps as published by Fitch.

Interesting.

So the green would be prime, and the red would be subprime.

Let me go all the way back.

Yeah, so actually, there you go.

You can see it was subprime that actually spiked even more.

You know, I do remember back in the dealerships that that was a time when

subprime lending was really taking off.

Had a bankruptcy?

No problem.

We can get you a new car loan.

Anybody that, when their bankruptcy was discharged,

borrowers or lenders and dealerships were buying those lists and then immediately sending out

correspondence to those people suggesting that, well, you know,

you just got out of bankruptcy.

You need to get the debt again, and we can help you.

And so I do remember thinking back that that was when subprime lending really started to

take shape, and it was this second chance finance, and we can help put you in a car.

And so, yeah, that's probably what it was.

So think about that for a second.

We are acknowledging the fact that we are at record setting, 32-year record setting,

auto loan delinquency rates for subprime.

And then we look at the prime chart.

The only rational justification we have from the author of this content and then my own dad's

experiences is, well, actually the numbers are being skewed by more subprime lending

actually happening at that time.

And probably what it sounds like to me, miscategorizing some people as prime borrowers,

then we're actually subprime borrowers.

That is absolutely crazy.

I want to put up another comment here because it rings so true.

I'm not naive, but I've never been able to wrap my head around targeting a group of people

already struggling and then saddling them with a risk-based pricing model that does

absolutely zero to help them, but rather jam them further into their plight.

This reminds me there was another post from someone in our industry today,

dad, talking about 84-month car loans are a death trap for customers.

Brian Binstock.

Brian Binstock talking about 84-month car loans are bad for car dealers,

even though it helps them sell cars today.

It stops them from selling cars in the future.

Something that I've talked about for years, which is dealers become enamored with short-term

profit gains and they don't look at the long-term ramifications.

And we have discussed that, that when you put people into 84-month and 96-month auto loans,

that you are essentially taking them out of the market.

And so many of these customers would prefer to be able to get a new car.

Brian Binstock.

Thanks, dad.

Binstock would prefer to be able to get a new car in three years or four years and not necessarily

have to wait six or seven years.

So it's dealers being short-sighted.

It is finance managers maximizing their pay plan potential

by putting people in these longer loans.

And then I'm telling you that the two, three years from now, these same dealers are going to

be wondering, how do we get our customers back?

You don't.

You can't bring them back.

It just doesn't work that way.

So what do you think happens on the other side of this, Deb?

Seriously, we are seeing bubble activity like never before.

What happens on the other side of it?

And to be clear here, it's other signs as well.

Bill's got so much good data on his page.

Let me quote back up on the screen.

Here is showing you the percentage of auto loans and lease balances becoming 30 and 90 days

past due.

And you can see here, this is your 90 day pass, excuse me, that is your 30 day pass due.

We're not even back to where we were pre-recessioned, but it's gone up significantly.

It's this cohort here, dad, 60 days past due that is rising to record setting highs.

And then obviously we're seeing the 90 day pass due increases.

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Well, I guess to piggyback on that one comment, not being naive.

I'm not naive either.

And to me, I don't know how it makes good sense to enslave people into debt.

The way that we have, especially people who have proven in the past for whatever reasons

that they were unable to handle their previous obligations.

So how do we come out on the other side?

What happens?

Maybe, just maybe, we look at the situations that we have created through the use of debt

in this country.

And we really start to educate people as to how to properly handle debt, what you really need

to be looking at before you sign on the dotted line.

You know, people fixate on a monthly payment.

They don't fixate on a term.

They don't fixate on what the total cost will be if they make all those payments

and then they add in their down payment and everything else.

They would be absolutely shocked to see what it's costing them.

So maybe we need lenders to say, we need to stop taking advantage of these people

because that's what they're doing.

Last time I checked, that's not the business model.

But I do hear what I'm hearing in your words are maybe there's a reset that happens on the

other side of us and a new approach to how we do automotive lending because to be clear here,

one of the outcomes eventually should be that there will be fewer people in the market to buy

cars.

And as a result, you will actually see car prices become more affordable.

That is a long, long, long time coming.

And they never actually come if financial institutions continue to find ways to do

financial engineering to get more people into more car loans.

Which at the end of the day, the banks can enable it, but it's the individual making

the decision to put themselves in that position.

They're the ones that have to be accountable.

You can't absolve the people who sign on the dotted line.

But you can chastise those who profit from encouraging them to do it.

Okay.

And I understand that it is not a bank or a lending institution's job to educate

the person who's looking for the loan.

It's not their job to counsel them.

It's not their job to sit them down and say, this is not a good financial decision for you to make.

I get that.

But at a certain degree, there has to be some amount of humanity that is associated with

capitalism.

Come on, man.

You're 74.

Yeah, I am.

You're 74.

You know that's not going to happen all the time.

So we got the red alarms blaring.

And you know what's still going to happen today?

You know what's still going to happen today?

Banks are going to lend to people who shouldn't get approved for an auto loan.

I can assure you.

That's still going to happen today.

We're going to switch gears here just a moment before we take it.

It happened during the great recession.

It happened with mortgages.

Does this actually feel like 08 again to some degree?

Well, I mean, back in 06, 0708, if you can fog a mirror, in other words, all you had to do

was be breathing.

If you can fog a mirror, you can get approved for a mortgage, for a house that you couldn't afford,

which is what caused the housing crisis.

And the same holds true for many car loans today.

If you walk into a dealership and you have a provable pulse and they could put a mirror

under your nose or mouth and it fogs, then there's a bank out there that will say,

hey, they fogged the mirror?

Yeah, sure.

Let's give them a loan.

And I get that.

And I get why dealerships do it because they're focused on their short-term profit interests.

But the long-term impact removes these customers from the marketplace in the future.

So you're making today look good while you're shooting yourself in the foot for

what's going to happen to three, four years from now.

You know, during COVID and during the chip shortage, manufacturers stopped underwriting

specialized lease programs for their customers.

And leasing, which at one point in time represented 32%, 33% of all sales,

dropped to about 17%, 18% of all sales.

The beauty of leasing is it forces your customer back in the market every three years or so.

Beauty from the industry perspective, yeah.

And from the dealership perspective.

That's what I mean by industry.

That's what I mean by industry, yeah.

And so to not have any lease returns coming back, not have those people back in the market,

putting those people on 70 to 84, 96-month loans.

And we know of banks out there, credit news out there, offering 120-month loans.

It is a short-term gain that will be a huge long-term loss.

That type of insanity is the type of thing that three, four, five years from now,

when those customers can't come back and you're struggling to find other customers to replace

them, then alarm bells will be going off because bankruptcy will be a real option for many of

these dealerships because there's nobody out there to buy a car.

And so sometimes you just have to put that short-term gain to the side and go,

no, I want to do something that is more beneficial for the continuing health of my business moving

forward. It seems to me. But then again, then again, I know people are going,

but you took advantage of people for 43 years. I allow people to make stupid decisions at times,

but oftentimes I sat them down and I said, this is not in your best financial interest,

at which point they would shoot back at me and go, don't tell me what I should or shouldn't do.

I'm buying the damn thing. Okay, well, if you want to be that damn stupid, go right ahead.

But it's not like a few years from now, you're going to come back to me and go, well,

you didn't warn me because I'll remind you of the conversation we had.

So you've seen this movie before. I participated in this movie before.

And I think the scale of what's happening right now is very concerning. And the data,

the macro data suggests that it's really, really, really bad. It's foundational. And to be clear,

it's a 32 year record. We have not since 1994 seen numbers this bad when it comes to

auto loans and the health of auto loans in the United States of America. And it is

undoubtedly impacting those that have worse credit than those that have good credit. Those

are the good, that's the cohort that's being impacted the most right now.

It is an indictment of our system and our society as to how we have grown so dependent upon

credit. And we have given in to our wants as opposed to our needs and allowed ourselves to

be taken advantage of and to become slaves to that debt. That's what it's an indictment of.

I love this comment then from Henry Matthews. I literally sat my daughter down yesterday and

explained auto loans and credit to her. Her takeaway was the industry is so scammy if you

actually need a vehicle quickly. More parents need to A, understand how these concepts work in

practice and then B, teach their offspring. Yes. This stuff is very important to understand.

We've been around for six years. We have been trying to share that information with people

for six years. There is no excuse today with the advent of the internet and all the information

that is available to us. There is no excuse today for people to be so ill-informed that they can

make the types of decisions that are setting them up for failure in the future. We can

say part of it is it's the parent's job, part of it it's the educational system's job, but part of it

is just a customer googling on the internet and getting as I mean how much free information

is out there just on the internet. How much free information have we shared with people over the

years? There is absolutely no excuse today if you allow this to happen yourself. I get

that you don't want to be the person that says I want it. I can't afford it. Okay,

so therefore I'm not going to get it because in this country it's I want it. I know I can't afford

it, but there's people out there who want to lend me money so that I can pay them back the money that

I don't have so that I can convince myself that I can afford the stuff that I really can.

How do you think we're paying for lunch today? We're doing installment payments for the next 72

months. Whatever it is. I get it. I mean there's so much pressure in our society to not appear as

if you're a loser because you don't have more than what you need. Let's make it cold a little

bit within your means again because the chart that we started today's show with dad, let me pull

it back up here, the chart that we started today's show with is like very very very concerning because

it also I think to a degree exacerbates a little bit of like the class system inherently here in

the United States. It's not that this is happening to prime borrowers right now. It's happening to

subprime borrowers, those that are trying to look apart or try to be a certain way. Those are the

borrowers that are all red right now, which again is the highest levels of auto-land delinquency

we've seen. Prime is hunky dory. Yeah. There's a lot of like anthropological, societal, there's a

big kind of like psychographic conversation to be had around all this. I think key takeaway for our

community is obviously be informed and then the other piece is this could eventually, who knows,

but eventually actually impact the car market. We take these people out of the market, there's

less demand. When you take out demand and you keep supply at the same price, it should go down.

That should be what happens. Or as a manufacturer you will understand that more and more people

are ending up in 72, 84, 96 month loans and you will adjust your future manufacturing

so that you are producing fewer vehicles so that your dealers don't become inundated with

inventory and they have to just cut pricing to any large degree. It's a real problem that nobody

ever really addresses and those who find themselves in that situation, it is as if there is no way to

get out of it once you've done that to yourself. You're talking about subprime car loans.

We know at the moment consumer debt is at the highest level it's ever been. Credit card uses

is at the highest level it's ever been. The amount of debt that consumers keep taking on

in order to maintain the lifestyles to which they have grown accustomed that they can't afford,

we see that go up month after month after month. We know most people do not pay off their credit

cards. They make minimum payments. The minimum payment is going to take you 30 years to pay

off the debt. You've got to pay more than the minimum but if you're stretched to the max

sometimes it's hard to be able to afford the minimum. We as a society have created this cycle

and we need to break the cycle. We need to say it's okay if you don't have the latest and the

greatest. You just have something that works and works well but I don't see that really happen.

Yeah, I'm right there with you. Dad, a couple more comments from the chat and then I want to

switch gears here for a moment. Some folks saying 2008 all over again. Obviously,

Bill, one of the car edge team members, my son is taking a money management class at school at

13. That's good. Good. More and more and more of that and we have here from Rich Diana as well

with a kind contribution. Thank you, Rich. We would need a lot of butter to get Ray into this

vehicle. The Vector W8. I can't wait to see this. Wait for it, Dad. Let me share the screen with

everyone. Stand by. We got the Vector W8. We're going to need the butter pops up to get in and

out. Yeah, that thing looks low to the ground. Wow, what a cool looking car though. Yeah, yeah,

I mean, yeah. Yeah, absolutely. Nicely done, Rich. We love it. Yeah, you just put me in a

vat of Crisco. Light them in and it's flying me in. Yeah. Again, folks, I'm seeking input.

This is in beta caredge.com slash dealer dash ratings or just Google car edge dealer ratings.

This is a new database. So for those of you that are not familiar, we have an AI agent,

it's part of Car Edge Pro. It's been reaching out to dealerships since July of last year. And in

that time, it has collected thousands of Albedor price quotes. We've actually contacted 46,920

or had 46,920 conversations with car dealers. We've added on this page, which is just under

reports and then AI negotiation impact. We've actually added a daily updating tracker,

which will show you cumulative savings that Car Edge has brought for our community,

including how much we were able to save on that day and how many new AI negotiations were started.

I think this is so cool, dad. We do a lot of information here to try and quantify our impact.

Like, did you know that we have sent 436,000 messages to car dealers and they've replied with

the most half a million? Wow, that's crazy, man. That's absolutely crazy. All sorts of information

on this page. I encourage everyone to check it out. But we've taken that information. Yes.

And then you can come here and you can search by dealer and you can actually find dealers who

have been ranked based on their performance, based on the information that they've provided.

So you can see here, this is a dealer that is the number three most transparent in California,

Ms. Lynn Honda. You can see it's because, well, they don't have add-ons. They actually gave savings

from the first OTD to the last OTD. So please, folks, this is in beta. I'm seeking input and

feedback. Please share it in the comments and in the chat. Very, very helpful for us. We want it

to be something that's useful for our community. Well, I think crunching the data will be very

useful, where you can compare an A dealer to an F dealer and go F, the F dealer,

in my opinion. Unless, of course, you're a subprime borrower and you'd like to get

screwed, then go to that deal in my opinion. How about that? How about that? All right,

let's call it a show for today. We'll save some of the other topics for tomorrow. We actually

have the physical copy of Consumer Reports' auto updates. Sorry, I'll be talking about that tomorrow.

So stay tuned for more Car Edge Live. But that's going to be here by your side. And grateful to

do another show with you. Thank you, everyone, for tuning in. And please, please, please share

today's episode with a friend. Let's try and get some more financial literacy out there, I think.

Yeah, that would be a wonderful thing. Yeah, it really would. Yeah.

All right, y'all, we're back tomorrow with more Car Edge Live. Thanks so much for tuning in.

Yeah. Have fun, everybody.

The Auto Loan Crisis Just Hit a 32-Year Record & Here's What It Means for Car Prices | Episode 1012

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