At the North American Repossessors Summit, attendees discussed the surge in auto repossessions, up 23% in the first half of 2024, due to declining consumer financial health.

High interest rates are exacerbating the issue, leading more Americans into delinquency as they struggle to afford high monthly car payments.

This trend is affecting consumer spending, with many redirecting funds away from non-essential items, impacting major retailers like Starbucks (SBUX) and Nike (NKE).

With two-thirds of the U.S. GDP driven by consumer spending, investors are urged to be cautious as the economic outlook remains uncertain.

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Attendees at last year’s North American Repossessors Summit had a lot to discuss, namely the historic demand they’ve been experiencing with the decline in consumer financial health.

At the summit, attendees discussed challenges and the future of the automobile repossession industry. They agreed that the industry’s biggest problem is quite simple… there aren’t enough people to do the job.

People can’t cover their debts, and the whole economy will feel it…

Auto repossessions are surging. Through the first half of 2024, repossessions are up 23% from the same period in 2023. Repos happen when folks fall behind on payments. It’s no secret that consumers are struggling to keep up with their bills, and that includes auto loans.

Consumers are struggling to pay off nearly all their debts, and seem to be rapidly approaching a breaking point. 90-day credit card delinquencies are back up to their highest level since the tail end of the Great Recession.

And interest rates are still high for the time being. That very well may force more Americans into delinquency.

Today, the average monthly interest payment for a new car is $739, and for a used car, it’s still a whopping $549. Many people simply can’t afford that, so they’re choosing to let their assets be repossessed.

This is a worrying trend and one that won’t be solved overnight. The Fed is still at least a few months away from cutting interest rates. Even then, it’ll be longer before consumers feel any relief.

While this isn’t guaranteed to plunge us into a recession, it means investors need to be careful about what kinds of investments they’re picking today.

As the consumer’s financial health declines, the flow of spending decreases. More importantly, it is redirected away from “non-essential” spending.

Many consumer companies are going to struggle if the average consumer can’t buy or chooses not to buy anything but the essentials. Remember, two-thirds of U.S. GDP comes from consumer spending.

Even massive retailers like Starbucks (SBUX) and Nike (NKE) are “feeling the pain,” because folks aren’t willing to spend. It’s going to be tough finding consumer retailers that won’t feel the pressure in the coming months.

The American consumer is in a tough spot. And that doesn’t seem like it’ll clear up within the next few months.

That means investors need to be cautious. Consumers are in trouble, and consumers ultimately drive our economy.

If car repossessions are any indication, folks are slowing down spending anywhere they reasonably can. That means more consumer companies are bound to struggle in the coming quarters.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research