Mark Rappaport
President
Simplicity Division
EFG Companies
I’m sure you’ve seen the 1993 movie Groundhog Day starring Bill Murray. His weatherman character disparages his assignment to cover the annual groundhog event, only to wake up the next day…and the next day…realizing he is inexplicably reliving the same day over and over again. Filled with cynicism, Murray fails to “flip the script” on his predicament and must suffer the monotony.
A lender client shared a similar sentiment with me concerning the recent rise in defaults, bemoaning how auto loan volume, defaults, and delinquencies all follow the cycle of economic ups and downs. The economy tanks and auto loan volume goes down while defaults and delinquencies go up. The economy is on the upswing and auto loan volume goes up while defaults and delinquencies decrease. It’s the same old story every year.
With a plateau in vehicle sales and elevated auto loan defaults, everyone is wondering if after ten years of an expanding economy, we are on the tipping point to a down economy. But, let’s take a look at the numbers.
The Great Recession was tipped by mortgage defaults, not auto loans. However, the behavior has some similar undertones. Subprime borrowers are suddenly missing payments within a few months of the vehicle purchase. This reflects the early signs of the subprime mortgage crisis in late 2006 and early 2007.