From dealers to lenders to tow truck operators, reports have poured in this month about a disturbing trend of rising car and truck repossessions.
Lisa Beilfuss Popeo, who covers the economy for Barron’s, recently reported that vehicle repossessions have doubled among “prime” borrowers, which includes consumers with good credit scores.
“One red flag is the rate of repossession for prime borrowers is starting to rise. It’s not just subprime borrowers that are having problems,” Popeo told CBS News.
The reason for the sharp increase in repossessions is not exactly clear. Some point to a bubble in the car market that was caused by rapidly rising prices due to a shortage of new cars and trucks.
The average price paid for a used vehicle in June was around $32,000 – an all-time high. Popeo thinks the rise in repossessions will result in a lot more used cars on the market, which could temper rapidly rising prices, especially if it’s accompanied by softening demand.
May not affect used car prices
Karl Brauer, executive analyst at iSeeCars.com, thinks a lot of used vehicles would have to hit the market to make a sizable dent in prices.
“The backlog of vehicle demand is pretty deep, so repossessions need to hit a fairly high volume to have any real impact on vehicle pricing,” Brauer told ConsumerAffairs. “We’ve seen pricing stabilize in the last few months, but at a much higher level than it was 15 months ago, around $10,000 higher on average for both new and used cars.”
Brauer thinks the only way repossessions could affect prices is if an economic downturn triggered a substantial drop in car buying and repossessions continued at a high rate.
“That could reverse the price of cars, but it has a long way to go if people are waiting for prices to return to normal, he said.
Some economists think the pandemic’s stimulus and extra unemployment benefits may have played a role in pushing up the price of used vehicles. Now that the stimulus money has been spent and the extra unemployment benefits have expired, some consumers who overspent on a vehicle are struggling to keep up with payments, especially now that inflation makes everything else more expensive.