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August 23, 2022 | Epic Auto Bust Cycle Now Unfolding

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

After housing, the auto sector is the next major driver of the consumer-driven economy. Since most buyers in both sectors are heavily financed, demand and prices tend to expand and contract with the credit cycle. From 2020 through 2021, a confluence of ‘easy money’ factors enabled demand to overwhelm supply and drive up auto prices.

Now that the credit impulse is reversing worldwide, auto sales have contracted for the last five months (something only seen during past recessions), while defaults and repossessions are ballooning.  An epic auto bust cycle is unfolding with predictable contagion to lenders, investors/speculators in the space.  On the upside, prices are headed lower for those who can wait to buy.  The segment below covers the implications well.

It’s time for a “Deep Dive” with Danielle DiMartino Booth. “The Consumer is Strong” needs to be in air quotes. The first inklings of just how bad the growing household default cycle would become from (surprise) an auto expert — Lucky Lopez. Las Vegas-based Lucky is a 20-year veteran who has run dealerships, car rental companies and built an expertise on the wholesale side of the used car business. The ‘repo madness’ he’s been seeing in the last six months is historic. Lucky’s colleagues (who own repo car lots) are buying, instead of leasing, land for overage lot space.

Not only did stimulus help unqualified buyers finance more cars than they could afford, but the COVID-delayed forbearance pushed out the timeline over which delinquencies turn into repossessions. Lopez’s work is a warning shot not just for investors in the auto space but also for credit card companies and, in the not-too-distant future, the housing market itself. Here is a direct video link.

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August 23rd, 2022

Posted In: Juggling Dynamite

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