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It's not just homes that are being taken away these days -- cars are also being repossessed at startling rates.
Today's all-too-frequent recipe for hard times -- resetting mortgages, increasing foreclosures, declining home
prices and soaring prices for food and fuel -- is now peppered with increasing numbers of consumers falling behind on car payments.
Thomas Webb, chief economist at Manheim Consulting,
a wholesale vehicle auction operator, says 1,505,000 vehicles were
repossessed in 2007, a 10 percent increase over 2006. He predicts
another 10 percent increase in repossessions during 2008, sending
repo numbers to one of the highest levels in a decade.
As repo figures climb, auction wholesalers and dealers are buying used cars at significant discounts and frequently
passing those savings on to consumers, says Webb.
Wells Fargo reports it has also seen an increase in
auto loan delinquencies and wrote off $1 billion in auto loans in
2007, an almost 17 percent increase over the $857 million in write-offs
in 2006. An even higher write-off rate is expected this year. As
with subprime home loans, low interest rates over the past few years
made it easy for people to buy cars they ultimately couldn't afford.
Between 1998 and 2008, the total of Americans' auto loan balances
jumped from $282 billion to $772 billion.
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| Fast facts |
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| 1. |
Car repos rose 10 percent in 2007 -- a similar jump is expected in 2008. |
| 2. |
Much higher used car inventories are pressuring resale prices lower. |
| 3. |
So far this year, used vehicle sales have dropped by about 7 percent. |
| 4. |
The current
national average rate for a 36-month used car loan
is 7.16 percent. |
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The 2007 Non-Prime Auto Financing Survey published
by the National Automobile Finance Association revealed that delinquencies
on subprime auto loans jumped from 6.8 percent to 11.6 percent.
Tom Kontos, chief economist for vehicle auction operator
ADESA, said ADESA's normal 45-day inventory rose to a 55-day inventory
in January 2008. Some of that has since eased, but Kontos says there
have been abnormally high levels of vehicles on the auction block.
"Some of it we anticipated in tough economic times,
but the spillover from the housing market may make this a little
out of the ordinary. The increased number of repossessions in the
first part of 2008 was greater than we expected," says Kontos.
While resetting mortgages may be driving some of the
problems in late car payments, Mari Adam, president of Adam Financial
Associates Inc., of Boca Raton, Fla., says the problem is compounded
by the fact that Americans have a bad habit of buying vehicles they
can't afford. Adam says she sees many clients overspend on vehicle
expenses -- sometimes spending as much as 40 percent of their income
on vehicles, when even 20 percent can be too much.
"The bill is coming due for a lot of people who were living large. Whether it's the house, the car, the credit cards or
anything else, it's a problem. You have to remind people that a car is a depreciating asset and you can't overspend on it," says Adam.
An easy credit market in recent years and dealers
anxious to find creative ways of helping consumers buy vehicles
they couldn't afford also share in the blame, says Philip Reed,
senior consumer advice editor at
Edmunds.com. Reed says many drivers have discovered their leases
are too long or that they've leased too much vehicle.
What you can do
If you're having trouble meeting your car payments -- or think you will in the near future -- there are things you can do before you mail
in the keys or watch the tow truck haul your wheels away:
- Sell and downsize.
- Renegotiate loan terms.
- Refinance.
People who bought with traditional financing have
more options, assuming that they are not upside down on their
loans.
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