CNN
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When 12-year-old Greg Cook’s car, a 2010 Honda Fit, pulled up and got off him in May 2022, he knew it would put him “between a rock and a hard place.”
He couldn’t travel without a car: He knew he would be out of a job soon – government funding ran out for the Covid-19 response position he held for two years – and that job hunting would be difficult because he moved. to a small, cheap (but remote) town in Oregon after losing his steady acting job to the epidemic.
“When I filled out the application, one of the questions I noticed was, ‘Do you have reliable transportation to and from work?’ ‘Can you go?’” said Cook, 56.
But without a steady job, he was afraid he wouldn’t be able to afford a car.
Cook did the math, weighed the pros and cons, and bought a new car. He locked in at a low speed, but that was one of the few bright spots: Since then, not only have many job applications been fruitless; but Cook, like many other Americans, was criticized by the skyrocketing prices.
Courtesy of Greg Cook
Greg Cook stands next to his car, a 2022 Kia Soul, on July 18 in Oregon.
His car – monthly payment, rapidly rising insurance, fuel and maintenance costs – takes up 30% of his monthly budget.
However, he can’t afford to lose it, so he uses the odd jobs he takes and his savings for a rainy day to pay off the six-year loan.
“It’s like taking a few pennies out of the piggy bank every few days,” he said, “and eventually that piggy bank is lighter. And it seems there are more days ahead than pennies.
Cars or trucks are a way of life for many Americans, but after three and three years of the highest prices and now the economy is slowing down, they have become a liability.
Crime is rising at rates not seen since the Great Recession, defaults are up and foreclosures are up 23% from last year, new data show of Cox Automotive.
And buying a car isn’t the way to go: Credit is getting harder and harder to get and rejection rates are rising.
Fewer people are applying for credit and a growing share are being denied, according to a June credit access survey released last week by the Federal Reserve Bank of New York.
The survey, which is conducted every four months, found that the credit application rate fell to 41.2% in June from 43.4% in February and the total rejection rate increased to 21.4% from 18.7% .
Although the increase varied by age group and credit score, the area that saw the biggest increase in rejection rates was car loans, which reached 18.5%, the highest of all. .
One of the two causes of high inflation and decades of high interest rates — the latter being the Federal Reserve’s remedy for the former — has reduced consumers’ willingness to borrow on many big-ticket items. .
That has been evident in the auto industry, where loan losses have declined year-on-year through 2023, said Jeremy Robb, senior director of economic and industry insight at Cox Automotive.
Auto sales rose slightly in the first quarter of this year, he said, “but not by much.”
“Everyone is waiting and hoping to see interest rates come down,” he said. “And I think we had a bit of a lie early this year – we thought inflation was coming down fast – and people thought prices were going to come down, but that didn’t happen.”
Another positive development for the car buyer has been falling prices, especially for used cars, Robb said.
Car prices rose in 2021 amid the fallout from the Covid-19 pandemic and the consolidation of global supply chains. In their case, the shortage of semiconductor chips (due to manufacturers shifting energy back to consumer technology as car factories shut down amid the pandemic and low demand) has led to insufficient production of enough cars to meet strong consumer demand.
David Paul Morris/Bloomberg/Getty Images
Used cars for sale in Richmond, California, in February 2023.
While cheaper cars are more profitable for buyers and may generate interest, that doesn’t mean lenders are more willing to pay. Instead, consumers have set a high bar, including very high down payment requirements and high credit scores, he said.
A loan with more restrictions usually equates to lower approval rates and higher rejection rates.
He said: “Lenders are cautious about consumer numbers and the economy as a whole. “Most of the economic trends are good, but not good… Lenders don’t want to lend to people if they fear they won’t they get their money back.”
Job growth has remained steady, but the unemployment rate has increased for three consecutive months and was at 4.1% in June, the highest since November 2021.
Since the first half of this year, auto returns have risen 23% from the first six months of 2023 and 14% from 2019 levels, according to Cox Automotive data released earlier this month.
Such a wave, while not alarming, may not seem as scary as it seems, Robb said.
When the pandemic hit and fiscal stimulus flowed freely in the early months to help American families and the broader economy, consumers were able to stay current on their debt. And many lenders were able to work with defaulting customers.
As the economy improved, returns began to improve and return to pre-crisis levels.
“I don’t want to downplay the fact that repossessions are high, default rates are high, and auto loan delinquencies are high as well,” he said. But many of the trends we see are back to normal.
Crime has increased at an even greater rate, approaching what was seen during the Great Depression; However, the errors haven’t appeared to be a significant increase, Robb said.
He said: “There are a lot of people who are clearly finding a way to make the payments they are behind on and find a way to get their credit out of default.”
Check out this interview on CNN.com
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