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Comment by thelastgallon | Hacker News Reader

Which eventually might be good? The repossessed cars will need buyers and they will offered at lower rates?

Nah, they will be sold into the used car market at whatever price the market will support while charging the highest interest rate possible.

From the report this is based on (pages 6-7), there are simply not enough cars to meet demand due to manufacturers constraining supply to maximize by price. Similar to new construction housing in the US. Tariffs make importing cheaper foreign made vehicles untenable. It’s an economic extraction doom loop.

Auto loans defaulting seems to suggest that the car market does not support the current rates and prices.

You’re correct. The loans are made because they’re profitable even when the borrower defaults and a repo is performed. The car is sold to someone else and the cycle repeats. The goal is to get you off the lot and to get enough payments and interest out of the borrower so it’s a net profit even when the borrower defaults.

"America runs on credit."

> simply not enough cars to meet demand due to manufacturers constraining supply to maximize by price.

Awhile ago, Harley-Davidson did this, not expand supply to keep per new unit numbers high, for years during their high demand phase. It's a legit business strategy if one is confident in one's demand curve's robustness.

My roommate stopped making payments on his car 6 month back, its underwater. The financing company doesn't want to repossess, he now has his car with zero payments. Eventually, the companies have to start repossessing all these ridiculously high priced cars and sell them at lower rates. There will be a flood unless someone wants to keep these non performing assets on their books.

The repossessions will happen over time eventually as repo throughput permits, and borrowers will still be on the hook for the debt unfortunately. There will be no flood. My condolences for your roommate's situation.

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