Don’t count Hertz out yet. They got unprecedented approval from the bankruptcy court to sell their common stock to the market, which could raise hundreds of millions of dollars. Seems like that won’t be enough, but their stock has seen huge increases in both price and importantly trading volume (several hundred million shares/day), so there’s a chance they could raise enough money eventually to get out of bankruptcy.
Issuing shares is going to transfer money from the retail investors to bond holders. The bankruptcy will still happen.
Or maybe they’ll have a good lawsuit on their hands.
Hertz stock just got halted. Apparantly the SEC has issues with the reverse robinhood of transfering wealth from retail investors to wealthy bondholders.
Well they certainly don’t care about that generally, but I think they were annoyed that HTZ didn’t finish resolving whatever questions or issues they raised regarding their stock sale filings before actually going out and selling stock. Not sure if they’re going to get delisted or just announce some delay to their sale plans or what.
I have heard that used car prices are rising rapidly. Apparantly dealers are having a hard time getting any inventory and bidding up prices. Inventory is not coming into the market because people not paying their auto loans aren’t being reposessed.
That’s really interesting. Just when you think demand would be sluggish and supply plentiful from Hertz bankruptcy and it’s temporarily the opposite.
Once the current low supply ends and Hertz fleet hits the market finally, I’d guess prices will come back down. But you never know these days.
Anyone getting forbearance is going to have large roll up payments. If they couldn’t afford one months $400 car payment, why would they be able to come up with $2,000 for 4 or 5 months of car payments?
Unless the auto lender allows them to defer the payments to the end of the loan? That seems really risky though since the cars have been depreciating the whole time, and a lot more of them will be upside-down… they’ll owe far more than the cars are worth and some people will decide to just stop paying.
I am wondering if once they resume the repossessions if the market gets flooded with inventory again.
I agree. One thing the lenders could do is simply extend the loan a few months, either eating the added depreciation loss, or tacking on a smaller loan to cover that depreciation instead of requiring the full payment that they know many won’t be able to make.
But like you said, eventually the cars are gonna end up on the market. If they were held up artificially currently, repossessions may return at higher volume to make up for it. When will that happen though?
Where did you get this from?
I don’t recall hearing anything about moratoriums on car repossessions. Its not in CARES.
Still even if they’re allowed to do it, I’d expect the pandemic would make repos slow down if not stop due to the nature of the business.
Most recent data on Q1 had delinquencies down:
Dunno what the WSJ says since I don’t pay em. Cliff notes on the facts ?
Wouldn’t this make the most sense? Anyone temporarily furloughed/laid off isn’t going to be able to make all their deferred payments at once, but there’s no reason they wouldn’t be able to resume making normal payments once they’re getting paid again; adding those missed payments (with interest, natch) to the end of the loan seems like the best course of action for both the lender (who gets paid) and the borrower (who gets to keep their car).
I’m not sure I follow. If the borrower keeps paying, even if deferred a few months, the lender hasn’t experienced any loss.
I was thinking for leases. You’re right, for loans the car depreciation is irrelevant to the lender.
The repo man is in trouble.
Eddie Whiteman has spent the past 29 years collecting the unpaid-for cars of Erie, Pa. His state license, #206, gives him the right to track down delinquent borrowers and repossess their vehicles for sale at auction.
He started with one tow truck and now has eight plus a small tractor, for pulling cars from narrow alleyways. Banks pay him $300 a job.
For financial cleanup men like Mr. Whiteman, economic downturns are usually good for business. The work of repossession agents, like that of debt collectors, bankruptcy lawyers and vulture investors, is countercyclical: They do well when the economy does not.
“I’m a janitor,” Mr. Whiteman said. “I clean up the messes.”
The coronavirus has made a giant mess of the economy, but Mr. Whiteman’s phone has stopped ringing. Borrowers are staving off defaults with stimulus checks. Banks are offering reprieves, worried about looking callous in the middle of a crisis. Congress gave the majority of mortgage holders a way to suspend monthly payments for a year if they want to.
“The usual playbook doesn’t work here,” said Brian Waugaman, chief executive of an Erie credit union that granted payment deferrals to 16,000 borrowers in April to avoid a sea of loan defaults.
Benign though the many debt-forbearance decisions seem, they’re rippling through the financial food chain with unpredictable consequences. America is living out a financial experiment unseen in modern times—testing what happens when the economy deals a devastating blow to millions of borrowers but lending institutions behave, for a time, as if it hadn’t.
Repo agents, debt collectors, auction lots and used-car dealers play a critical, if sometimes criticized, role in the U.S. economy. They clear the detritus of soured loans, recycling the lent capital. Their activity helps keep money moving between lenders and borrowers, especially high-risk borrowers, said Efraim Benmelech, a professor of finance at Northwestern University.
“It’s that ease of repossession that keeps the market flowing,” he said.
With the credit recycling machinery largely frozen, banks may be less willing to make loans, especially riskier ones, when the pandemic passes and the economy fully restarts, Mr. Benmelech said.
The revived economy is sure to be a time when many consumers and businesses want or need credit. The debts on which they got a temporary break didn’t go away. U.S. consumer borrowing stood at a record $14.3 trillion at the end of last year. Americans hurt by the downturn will emerge from their debt reprieves even deeper in the hole.
In the meantime, the scavengers are going hungry, joining the list of workers whose incomes have been hammered by the coronavirus. Jim Hallett, chief executive of car auctioneer KAR Auction Services Inc., said new inventory in the Erie area slowed to a trickle during the shutdown.
Sitting in his truck one April night on the shore of Lake Erie, the 54-year-old Mr. Whiteman wondered whether his company, Eddie’s Collectables, would survive.
Erie is like a lot of other parts of America that lie outside big and prosperous metropolitan areas: lightly touched by the coronavirus itself, but hit hard by the fallout, including business shutdowns aimed at containing it.
Erie was already on its heels, battered in recent decades along with other Rust Belt cities. The General Electric locomotive plant was sold, the old Hammermill Paper plant shut down, and people moved away. Erie is home to two of the three poorest ZIP Codes in the state. Median income, which in 1970 was around the national average, is today 20% below the average.
Many residents closed gaps in their finances by borrowing. On average, they carry a debt load slightly higher than their annual income, according to Federal Reserve data. Some already were skating close to the edge when businesses shut down to slow the coronavirus.
Emily Baughman, a Lyft driver in the Erie area, carries student debt and has struggled to pay the $150 due every two weeks at Bob’s Irresistible Auto Sales, for a 2011 Suzuki compact she bought last year and uses to ferry passengers. Rides plummeted when Erie’s bars closed.
Her lender notified her it had started the paperwork to repossess her car. “I was like, ‘Hold on, you can’t repossess my car in the middle of a global pandemic,’ ” Ms. Baughman said she responded.
When the lender asked for proof of her decline in income, which she supplied, it backed off and promised to work with her on a payment plan.
Lenders all over the country are offering breaks similar to that. After Pennsylvania Gov. Tom Wolf declared a business shutdown in March, Mr. Waugaman, the credit-union chief executive, mustered his staff. His Erie Federal Credit Union had $335 million in loans outstanding, about 40% of them for cars. “The auto book was a little scary,” Mr. Waugaman said.
At the end of last year, just 44 of the credit union’s 11,222 car borrowers were behind by more than two months, federal filings show. In March, a default wave was on the horizon. Mr. Waugaman asked his team to restructure loans, but transportation bureaus had closed and they couldn’t file the necessary paperwork.
Instead, Erie Federal Credit offered one-month deferrals to 16,000 borrowers, leaving Mr. Waugaman to figure out how to account for them. He raised by 3% Erie Federal Credit’s projections for loan losses from unforeseen environmental factors.
Mr. Waugaman furloughed most of his 174 employees in early April. With branch lobbies closed, he has been working from home and taking calls as he walks his chihuahuas, Bear and Cha-Cha, around the neighborhood.
The register of local foreclosure proceedings, which three months ago was receiving about seven new cases each day, had none on most days in April.
“There is this myth that the pandemic happened and there is a spike” in collection actions, said Michael Jan Janin, a bankruptcy attorney in town. “Things have instead come to a standstill,” he said.
When Mary Schmidt and her husband, proprietors of Lost Acres Farm outside Erie, faced foreclosure several years ago on a hay baler, eight men showed up in the driveway one day to repossess it. According to her account and her lawyer’s, Ms. Schmidt climbed on top of the baler, saying it was illegal for collection agents to take an occupied vehicle, until the state police showed up to shoo away the repo men while a court could review her claim.
Lost Acres Farm is in financial trouble again, but this time its creditors aren’t calling. When the Schmidts decided to shut the dairy farm earlier this year, they owed more than $1.8 million for equipment, construction, veterinarian bills, feed, overdue taxes and mortgages on their home and land, according to creditor claims. Ms. Schmidt expected lenders to start filing court motions to take back what they could.
“They’re not doing it now because of the big issue: With the Covid-19, farm prices have tanked,” said Ms. Schmidt, who is back in court trying to work out a payment plan.
Ronda Winnecour is the bankruptcy trustee for the western district of Pennsylvania. She funds her office by taking a slice of payments the office processes for people in bankruptcy on car, credit-card or other debt. It processed $100 million of these last year.
With banks offering breaks and fewer bankruptcy cases filed, the bankruptcy trustee’s office itself is having trouble paying its expenses. They include rent on space in the U.S. Steel Tower in Pittsburgh.
“Everybody is hanging on the precipice, including us,” Ms. Winnecour said. She received a federal small-business loan of about $550,000 to keep paying her staff.
In a good year, Eddie’s Collectables pulls in $1 million, according to the repo firm’s Mr. Whiteman, though after payroll, insurance bills and the leases on his tractor and trucks he’s lucky if $30,000 is left.
This year started slowly, a light snowfall meaning fewer tow calls following traffic mishaps. He picked up some work for the local police and was back on track in February, when he heard about the coronavirus.
He called a Secret Service agent he had gotten to know while doing odd jobs at the Erie home of Tom Ridge, the former U.S. Homeland Security director. The agent, now at the Secret Service training academy in Maryland—“he’s plugged in, you know,” Mr. Whiteman said—told him the news media were blowing the virus threat out of proportion.
Two weeks later, the agent called back and told him, “This is bad.”
Mr. Whiteman’s last pre-shutdown bank repo job was in mid-March, a 2008 Chevy TrailBlazer he found parked outside the buyer’s house. It ended up at a lot in Akron, N.Y., of Mr. Hallett’s KAR auction service.
The TrailBlazer owner was cordial, but many of Mr. Whiteman’s jobs aren’t. He has been spit at, shot at and chased through yards, he said. He has a two-centimeter scar on his right thumb from a Rottweiler that taught him a lesson. “I try to keep my hands in my pockets,” he said.
Like millions of other small-business owners, Mr. Whiteman sought a stimulus loan to tide him over. The funds arrived in April, about $38,000. He said it would be enough to pay his eight employees for two months, leaving him free to use spare cash on his last mortgage payment, due July 1, on the 9,600-square-foot warehouse he zips around on a motorized scooter.
His business these days is mostly picking up the impounded cars of people who parked where they shouldn’t have. He doesn’t love those jobs.
“People always try to tell you about the diamond ring gone missing out of the back seat,” he said.
Mindful of the coronavirus, he has been microwaving the cash he gets paid.
Thanks for providing the WSJ text so we can see it.
But it doesn’t really say too much about the size of the impact on the used car market.
Defaults on car loans will certainly impact the car market, the lenders and the borrowers. We can assume that reduced repos will decrease the # of cars sold in the wholesale market. But the size of that impact it will have is unclear here.
How many cars are repo’ed in the US in a given month? How has that changed w/ Covid? What % of the used market is this?
I found one reference that theres about 100k repos a month and I think don’t we buy/sell 40M cars a year ?
Some personal data points. I saved the link to the car I’m looking at. One of them actually jumped $500 in price in the last week. the formula I posted above about paying $1k over trade-in value seems to be completely useless (I haven’t made an offer yet but the conversation with a friendly noob sales guy seems to confirm my feeling).
This is a weird market for sure. Since this will be a “fun car” for me that’s completely optional, I’ll sit out and just watch for now…
What do the color columns represent? Age of the vehicle? Or monthly change X years ago? Or price gain over X years?
