When money is ultra-cheap, many people do dumb things with it. During the pandemic, interest rates dropped to record lows and demand for vehicles (and auto loan securities) lept while repossession actions halted. Some 86% of new purchases and 56% of used vehicles are financed. Canadian auto loans presently range in interest rates from 3.99% to 31.99%, depending on the borrower.
With many having bought vehicles at elevated prices over the past two years, now interest rates are sharply higher, and fuel costs are crushing. People need to spend less on transportation. Naturally, defaults are rising, and repo activities are back in full force. On the leading edge of the credit cycle, auto defaults are an economic indicator that leads mortgage defaults by about six months.
Massive used car supply is coming to market as two million-plus US repossessions in the first six months of 2022 eclipse full-year norms pre-pandemic. This video offers a good update. Here is a direct video link.
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