The subprime auto market is deteriorating. Should investors panic? – The Average Joe


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    The subprime auto market is deteriorating. Should investors panic?


    January 30, 2023

    Struggling consumers are falling behind on car payments, and many are having their vehicles repossessed.

    Here’s the story of 21-year-old Kobe Hatch (BBG).

    • With higher interest rates, his monthly car bill cost nearly $1,000 and he fell behind on payments.
    • His car was repossessed, and without it, he got fired from his job as an Amazon driver.
    • It’ll cost him $1,100 to pay the repossession fee to get his car back — which he doesn’t expect to be able to afford.

    Many Americans share a similar story, and the data reflects the changes:

    In December, 5.67% of subprime borrowers — those with lower credit quality — were 60 days late on their payment.

    The data also shows just how unevenly the downturn is hitting different parts of the economy.

    Here’s some positive news:

    • The number of repossessed cars is still 26% below 2019 levels, and prime auto loans haven’t significantly increased.
    • Subprime loans are a lesser portion of total loans — at under 20%, per Cox Automotive — compared to over 30% in 2008.

    Is it time to panic? Trick question; it’s never time to panic. Staying out of the market in anticipation of a bubble popping can be costly.

    • Imagine thinking the S&P 500 was in bubble territory after nearly doubling over five years (2011-2016).
    • Just to cash out — and watch it rise another 100% over the following five years (2016-2021).

    No one can accurately call a bubble. The only thing we know is that the S&P 500 has risen nearly 15,000% in the past 50 years — surviving countless recessions.

    Stay diversified, stay invested and don’t be bubble boy.

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