Millennial Repo

An interesting data nugget percolated the other day about a “sharp worsening” – that is to say, an increase – in the number of car loan defaults among borrowers under 30 years old. According to Bloomberg Financial News, the rate for the Millennial demographic was 4.04 percent last quarter vs. 2.36 for the general population, or about twice as high.

But it’s not just The Youth who are in danger of having their cars repo’d.

The overall delinquency rate last quarter was at its highest level since 2012 – and the total number of car loans (new and used) as well as leases is up by 5.2 percent.

More people, in other words, are buying cars they can’t afford.

What’s especially interesting is that the increase in delinquencies isn’t happening in parallel with a recession. Unemployment is at a 50-year low. So people aren’t defaulting on their car loans because they lost their jobs.

Their jobs just don’t pay enough to support a car loan.

This shouldn’t surprise anyone who has been following the car business even casually. It now takes roughly twice as long to pay off a new car loan as it did in 1970 – about six years vs. three once upon a time. Because the cost of cars has geometrically outpaced what people are earning.

But not all cars.

In fact, today’s entry-level cars cost about the same as their analogs of almost 50 years ago.

For example, in 1970, you could by the all-new Chevy Vega (God help you) for just $2,090 – the equivalent, adjusted for inflation, of just under $14,000 today. Which could buy you a car like the 2019 Mitsubishi Mirage I recently reviewed. See here for that.

And the new Mirage does not have a self-melting engine, as the Vega did (Chevy decided to install the pistons in the aluminum block without iron cylinder liners) but does have air conditioning, power windows, locks and even cruise control – things which only Cadillacs had back in 1970.

The problem is the cost of the average new car.

It approaches $35,000 – which is almost-Cadillac money. Well, it was – once.

You could buy a ’70 Sedan deVille for $6,118 in 1970 – equivalent to $40,740 today, or only slightly more money than people are paying for average cars.

But average people are not earning Cadillac money – while trying to finance cars that cost Cadillac-equivalent money.

Wherein lies the rub.

If lending standards were stricter, there might not be a problem. It might even solve some other problems.

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