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"The Car Market Crisis Will Economically Destroy
Young Americans As They Can't Afford Auto Payments"
by Epic Economist
"The car market crisis is far more complex than people realize. With car prices crashing down, some would assume that the cost of auto payments would go down too, but the exact opposite is happening right now. Buyers are seeing the value of their vehicles plummeting while they’re stuck with some of the most expensive auto payments ever seen. And that’s occurring at a time when jobs are at risk and inflation is pushing the cost of daily necessities to record highs. Millions of workers are falling behind their loan obligations, getting in danger of losing their vehicles while still carrying massive amounts of car debt. This is especially true for young Americans. Right now, Gen Z and Millenials are being economically destroyed by the auto loan crisis as they can’t afford their car payments and are about to face dire consequences that can impact their financial future for decades. We have never had a messier outlook for the auto sector than we have now in 2023. The ripple effects will be quite disastrous, and it looks like a major collapse is already underway.
Over the past three years, people have taken significantly more debt to buy vehicles. This a trend that has been particularly predominant for Gen Z and Millenials, who the Federal Reserve believes may have borrowed way beyond their means. New data shows that young Americans’ finances have started buckling under the weight of car expensive loans — one more worry to contend with in this precarious economic environment. Although it’s somewhat normal that this group actually has higher car debt rates because many of them are buying their first car, data compiled by VisualCapitalist.com shows that for Americans under the age of 40, vehicle related-debt has grown by 31% since the pandemic, almost three times faster than for other age groups.
No wonder why right now Millenials and Gen Zs say that car payments account for over 20% of their after-tax income, according to Cox Automotive. And of course, the amount of auto debt transitioning into serious delinquency is much higher for Gen Z and Millennials who carry elevated levels of credit card and student loan debt and have less stable jobs. Last year alone, these generations saw $20 billion in auto debt fall 90+ days behind.
With auto loan delinquency rates still spiraling amongst this group, the consequences for young Americans can be more devastating than they realize. On a personal level, the financial distress caused by unaffordable payments, and the delinquent status can impact their access to credit for years to come. On top of that, their vehicle remains at risk of being repossessed, and that’s already happening at alarming numbers.
And if the lender sells your repossessed vehicle for less than your loan default balance, this means delinquent young Americans will still have to pay the difference. To make things even worse, their remaining auto loan debt can be sent to a third-party collection agency. So if they don’t cover the deficiency balance in an appropriate time frame, the agency will likely sue them for repayment, only adding to their financial woes.
"It looks like young Americans just can't afford to drive," outlines Matt Moore, vice president of the Highway Loss Data Institute. "Paying for their own cars, gas, and insurance is hard if they can't find a good-paying job," he emphasized. That’s what a broken system looks like. And these are just the very first chapters of a much larger economic and financial meltdown that will continue to shake our country to the core."