Why Americans Are Falling Behind on Auto Loans At Their Highest Level Ever

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, I feel like I just do not have any feel right now on the state of the consumer, really. I mean, you hear K-shaped economy, labor market's slowing down, then it's like lowest layoffs in years, you go outside, everything looks booming. I just have no feel right. I know consumer sentiment is terrible, but consumer sentiment is terrible for years, and people keep shopping. I have no sense of it.

Tracy Alloway (0:49)

Well, consumer sentiment actually came in higher than expected most recently. Big surprise. But I was going to say, are you not out shopping for Christmas presents?

Joe Weisenthal (0:59)

It's insane.

Tracy Alloway (0:59)

Yeah. There's a lot of people buying a lot of stuff.

Joe Weisenthal (1:01)

There's a lot of people buying a lot of stuff.

Tracy Alloway (1:03)

But I think this gets to the K-shaped economy point, which is if you have a cohort of wealthy people who are buying more, it more than offsets the lower income people who are buying less at lower prices. So it's really hard to tell.

Joe Weisenthal (1:19)

It's really hard to tell. One thing that definitely feels different, if you look at aggregate measures of household balance sheets, like this is something that is very different than sort of like pre-grade financial crisis. The general view is that the American consumer or the American household has a very big cushion. There is a lot of home equity built up. That is not a thin layer.

Obviously, anyone with money and any sort of investment account has done phenomenally well. We're recording this December 12th, yesterday. I think the S&P 500 hit yet a new all-time high. So if you have any sort of home equity built up, if you have any sort of investment, you are doing very well. On the other hand, of course, people are stretched from years of inflation. We know that hiring has slowed down. We know that, you know, we see these headlines, delinquencies for cars have like shot up, but I've been seeing these headlines for years. I don't totally know what they mean or how apples to apples they are with the past. I just don't know. I just I'm very confused.

Tracy Alloway (2:19)

Yeah. You know, it's really interesting to me just from a financial perspective. If you look at some of the bonds that were actually built on consumer loans, the weakest ones are now from the like 2020 to 2022 period.

Joe Weisenthal (2:35)

Oh, see, this is another interesting element of measures like delinquencies and why I sort of wonder like how comparable they are because, okay, partly a delinquency measure is a snapshot of a moment in time, right? It's a snapshot of health, but it also inherently reflects something in the past because it reflects what we're lending standards at the time.

Tracy Alloway (2:56)

Right. Exactly.

Joe Weisenthal (2:57)

So, you know.

Tracy Alloway (2:58)

That was a period of low interest rates. Everything was booming on Wall Street.

Joe Weisenthal (3:02)

It was booming itself. Yeah, give money to anyone. Anyway, we need to get a better picture of exactly what's going on. How stressed is the consumer? How much do these delinquencies just reflect the profligacy of lenders during the boom times when rates were nothing, etc. And yes, we need to figure this out, especially we're in the middle of shopping season and all that stuff. So, I'm very excited to say we really do have the perfect guest. We're going to be speaking with Rikard Bandebo. He is the executive vice president, chief strategy officer, and chief economist at VantageScore, a credit scoring company. Rikard, thank you so much for coming on the podcast.

Rikard Bandebo (3:37)

Thank you for having me. It's an honor.

Joe Weisenthal (3:38)

What is VantageScore, a US credit scoring company? What do you do there?

Rikard Bandebo (3:43)

So, we're the largest credit scoring company in the United States, and we were founded almost 20 years ago by the three credit bureaus, TransUnion, Equifax, and Experian. And we were sort of graded with a very specific mission in mind to drive greater competition in credit scoring. Prior to us, there really wasn't a lot of choice in this space. We were also there to drive more innovation and create the most predictive scores, which was a big ask from the banks at the time, and also to be able to expand access to millions to enable everyone who really is credit worthy to be able to get access to credit products.