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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Today presents a special tandem of bonus charts. It’s been a while since we’ve delved into the auto industry, so let’s check in on Spartanburg, Stuttgart, and Ulsan. To borrow a phrase from Toby Keith, “I ain’t as good as I once was.” These charts starkly highlight the limitations of monetary policy. Tighter lending standards and rising interest rates offer no relief to the supply side of the equation.

Auto Loan Rejection Rates Hit All-Time High - MSR1

Turning our attention first to credit, the average interest rate on a new car auto loan currently stands at 9.8%, with used car financing typically 2-3% higher, varying by state. Auto loan rejection rates have surpassed 14.2%, marking an all-time high since the NY Fed initiated its records in 2013. Additionally, 6.1% of subprime auto borrowers are now 60+ days overdue, setting a new record. For comparison, the highest delinquency rate for this demographic was 6% in 1994 and 5% in 2008. Notably, during the Global Financial Crisis, many chose to forfeit their homes but held onto their Toyota Camrys. Regrettably, the scenario appears reversed in 2023.

Auto Loan Rejection Rates Hit All-Time High - MSR2

Amid supply chain shortages, the advance in demand witnessed in 2021, a shift toward electric vehicles affecting the availability of internal combustion vehicles, and the current UAW strike, the prices of new and used cars remain near record highs. The UAW strike has resulted in an approximate $3.6 billion loss for GM over a span of 40 days. Negotiations are now honing in on a wage increase of 23%, but with the addition of cost-of-living adjustments and enhanced benefits packages, Ford anticipates a 30% increase in per-worker costs.

Concurrently, the auto industry is grappling with climbing insurance rates, directly impacting sales volumes and profitability. In certain instances, consumers find themselves paying more for car insurance than for their actual car payments. We realize today’s bonus section has been abnormally cheerful for us; we will bring it back to earth tomorrow.

Learn more about the Market Situation Report written by Tier 1 Alpha.

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Auto Loan Rejection Rates Hit All-Time High - China Show

Auto Loan Rejection Rates Hit All-Time High - GLL Show