1 and seeking even lower - quality borrowers... These spirals will typically repeat several times before the whole charade breaks down, with the data getting uglier and uglier with each go-round. For example, since we began following this market in 2013, the longest-term length of these loans (Box 3) has gradually stretched from 60 months (2013) to 84 months (2015) to 96 months (2016).
The toll this takes on individuals is harsh. More and more will find themselves suffocating from overwhelming auto-loan debt...
But when the death spiral finally breaks, the entire auto-lending market will collapse... and take the auto manufacturers and new-car dealers down with it... The toll this takes on individuals is harsh. More and more will find themselves suffocating from overwhelming auto-loan debt... with their cars worth far less than they paid. And that’s just one branch of the Most people with a 401(k) or brokerage account will see huge losses. And it could result in the biggest shift in America... affecting both you and your money. To learn more, including the most important step you can take to protect yourself, click here to get my colleague Porter Stansberry’s new book The American Jubilee . massive debt problem in America. For many, there will be no escape.
Some of these unqualified borrowers will inevitably stop paying and eventually default (Box 4), leading to more repossessions (Box 5). Repossessed cars end up at used-car auctions. The increased use of leasing also floods the used-car market as cars roll off their leases after two or three years. This puts downward pressure on used-car prices – the lifeblood of the entire auto market (Box 6). Since used cars are collateral for many ABSs, a falling market for used cars weakens investor demand for the securities, making it necessary for auto lenders to seek other sources of financing (Boxes 7 and 8). To lure investors back to the ABS and funding markets, lenders need to show Wall Street healthy growth numbers. So auto lenders start the spiral all over again... going back to Box
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