# "The Big Short" on car loans **URL:** \ **Category:** Factual Questions\ **Created:** [January 1, 2025, 8:16pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457 "2025-01-01T20:16:00Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![needscoffee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/needscoffee/32/1076_2.png) [@needscoffee](https://boards.straightdope.com/u/needscoffee)\ **Post date:** [January 1, 2025, 11:41pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/21 "2025-01-01T23:41:45Z")
> [@kenobi\_65](#): > > I hope this wasn’t his Cybertruck Can’t say - it’s not in the lot today… 😬 ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [January 2, 2025, 1:32am UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/22 "2025-01-02T01:32:00Z")
> [@TriPolar](#): > > Most owners are ‘underwater’ as soon as they drive the car off the lot. Not if they made a down payment or trade in, or both. And cars are now expected to last 5-10 years, not the three years of old days- the idea that your car depreciated in value by a third once you drive it off the lot is passe. Check used car prices if you dont believe me. > [@3AxisCtrl](#): > > If the owner defaults, IF! > [@LSLGuy](#): > > Is to “coming crash” I’d ask: _what_ is going to crash? Good point. ---
**Author:** ![Saint\_Cad](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/saint_cad/32/18907_2.png) [@Saint\_Cad](https://boards.straightdope.com/u/Saint_Cad)\ **Post date:** [January 2, 2025, 1:42am UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/23 "2025-01-02T01:42:29Z")
> [@DrDeth](#): > > Not if they made a down payment or trade in, or both. There seems to be a growing trend of buyers rolling over negative equity into their new car meaning they are underwater an soon as they sign on the dotted line. This was predicted by many people back as Covid was letting up considering people were getting loans they couldn’t afford (sound familiar?) which is not a big deal IF you keep your car for the term of the loan. However many people only hold onto a car for 3 years and loans were going out 7 or 8 years to get the payment lower. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [January 2, 2025, 2:00am UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/24 "2025-01-02T02:00:50Z")
> [@Saint\_Cad](#): > > There seems to be a growing trend of buyers rolling over negative equity into their new car meaning they are underwater an soon as they sign on the dotted line. I have not heard of this, but weirder things have happened. ---
**Author:** ![ParallelLines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/parallellines/32/3575_2.png) [@ParallelLines](https://boards.straightdope.com/u/ParallelLines)\ **Post date:** [January 2, 2025, 2:12am UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/25 "2025-01-02T02:12:14Z")
I think the negative equity was more a factor of the now much rarer (but not fully gone) zero % down, usually some sort of combination of dealer / manufacturer incentives applied in lieu of an initial deposit and often predatory interest rates (in comparison to a traditional loan). IE, yes, very similar to the concerns about the prior housing bubble loans. In such cases, especially with 20+% initial depreciation, you could be quite upside down for a substantial portion of time, especially depending on how the loan was structured (see predatory lending again). And we’ll leave out people who constantly confuse leases vs purchases, which shouldn’t be an issue but often prey upon younger, first time buyers who want all the vehicle (of whatever sort) they think they can swing a monthly payment on. They often do that, and forget little things like insurance, registration, and other costs and quickly become overextended. Still it _may_ become a bigger issue, although as stated upthread, more as a side effect of other economic issues over the next 4 years possibly prompted by kneejerk economic decisions and efforts to claim _moral_ successes against compromise. ---
**Author:** ![md-2000](https://avatars.discourse-cdn.com/v4/letter/m/9d8465/32.png) [@md-2000](https://boards.straightdope.com/u/md-2000)\ **Post date:** [January 2, 2025, 7:24am UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/26 "2025-01-02T07:24:50Z")
> [@Stranger\_On\_A\_Train](#): > > There is no such market for auto loans, and because they are of such short duration (typically no more than 60 months) there is no real way to drag all of this out for decades, This was my thought seeing this thread - a mortgage is for decades, but any imbalance in the car market as seen during and right after the pandemic has worked tiself out and prices are more rational now. Even loans and associated interest rates on new purchases would adjust quickly as the fed drops its rates. Whatever mess there was 3 or 4 years ago is almost over in terms of being paid off. Earlier crazy prices were I assume a feature of panic buying - when you _need_ a new car, it can’t wait, so prices were bid up. The last while, that is not a factor as the market is not so tight. ---
**Author:** ![Munch](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/munch/32/5281_2.png) [@Munch](https://boards.straightdope.com/u/Munch)\ **Post date:** [January 2, 2025, 1:47pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/27 "2025-01-02T13:47:12Z")
> [@DrDeth](#): > > And cars are now expected to last 5-10 years, not the three years of old days Other than extremely low-end budget models, at what point since the 1930s have cars been expected to last just 3 years? ---
**Author:** ![Tride](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tride/32/13907_2.png) [@Tride](https://boards.straightdope.com/u/Tride)\ **Post date:** [January 2, 2025, 1:52pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/28 "2025-01-02T13:52:48Z")
My experience is that until about 25 years ago 100,000 miles meant the car was rattly and high-maintenance. That’s more like 6-8 years, but my 2010 Dodge 1500 with 205,000 miles and normal maintenance is doing fine. Pick your (Japanese) model carefully and 300+ should be easy. ---
**Author:** ![Machine\_Elf](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@Machine\_Elf](https://boards.straightdope.com/u/Machine_Elf)\ **Post date:** [January 2, 2025, 2:16pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/29 "2025-01-02T14:16:36Z")
Average annual mileage in the US is around 14,000-15,000 miles; if you assume a car is good for 200K miles, then it should last for about 14 years. > **[Car longevity](https://en.wikipedia.org/wiki/Car_longevity)** > > Car longevity is of interest to many car owners and includes several things: maximum service life in either mileage or time (duration), relationship of components to this lifespan, identification of factors that might afford control in extending the lifespan. Barring an accidental end to the lifespan, a car would have a life constrained by the earliest part to fail.\[obsolete source\]\[clarification needed\] > An automobile is a highly engineered collection of complex components, each of which has i... > Due in part to manufacturing improvements, such as tighter tolerances and better anti-corrosion coatings, in 2012 the typical car was estimated to last for 200,000 miles (320,000 km) [[4]](https://en.wikipedia.org/wiki/Car_longevity#cite_note-4) with the average car in 2024 lasting 160,545 miles according to the website Junk Car Reaper.[[5]](https://en.wikipedia.org/wiki/Car_longevity#cite_note-5) > > According to a recent study by Junk Car Medics the average vehicle in the USA last 16.58 years and 156,470 miles. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [January 2, 2025, 2:24pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/30 "2025-01-02T14:24:41Z")
> [@jnglmassiv](#): > > Car loans are so different from home loans (and the wider markets that make those loans possible/attractive), it’s hard to even know where to start. But the biggest is that a car is expected to depreciate while a home, all things considered, is a lot more stable if not rising in value. This. Not only do homes rise in value, people tend to prioritize paying off their mortgage. Because of that, AFAIK there isn’t much of a market for banks to package up and sell car loans as CDOs. Ergo, banks are not going to have billions of debt on their balance sheet in the form of car loans that suddenly become worth, ---
**Author:** ![RitterSport](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rittersport/32/6326_2.png) [@RitterSport](https://boards.straightdope.com/u/RitterSport)\ **Post date:** [January 2, 2025, 2:30pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/31 "2025-01-02T14:30:24Z")
> [@msmith537](#): > > AFAIK there isn’t much of a market for banks to package up and sell car loans as CDOs Banks and car finance companies definitely package up car loans as asset-backed securities. I can’t tell if you’re using CDO as a synonym for ABS or if you mean the toxic CDOs of MBS that blew up in 2008. An ABS (asset-backed security) is a type of collateralized debt obligation (CDO). ---
**Author:** ![F.U.Shakespeare](https://avatars.discourse-cdn.com/v4/letter/f/aca169/32.png) [@F.U.Shakespeare](https://boards.straightdope.com/u/F.U.Shakespeare)\ **Post date:** [January 2, 2025, 2:34pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/32 "2025-01-02T14:34:29Z")
> [@Munch](#): > > Other than extremely low-end budget models, at what point since the 1930s have cars been expected to last just 3 years? Three years may be a little low, but [planned obsolescence](https://en.wikipedia.org/wikiplanned_obsolescence#History) was definitely a thing. The ‘high’ point may have been with some American car makers in the 1970s. Chrysler pretty much admitted it, with their “The pride is back” campaign in the early 1980s. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [January 2, 2025, 2:49pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/33 "2025-01-02T14:49:36Z")
> [@RitterSport](#): > > > [@msmith537](#): > > > > AFAIK there isn’t much of a market for banks to package up and sell car loans as CDOs > > Banks and car finance companies definitely package up car loans as asset-backed securities. I can’t tell if you’re using CDO as a synonym for ABS or if you mean the toxic CDOs of MBS that blew up in 2008. An ABS (asset-backed security) is a type of collateralized debt obligation (CDO). I’m using the term CDO more broadly to refer to the extent banks held RMBS-based CDOs back in 2008. I guess it makes sense there would be ABS for car loans as banks will package up anything. But I think the big difference is that back in the 2000s there was an assumption that real estate never went down in price and people bent over backwards to pay their mortgage. So there was very much a mentality of just buy more as they can never decrease in value. IOW, I would not expect banks to have billions of dog shit wrapped in cat shit based on auto loans to the point where they risk becoming insolvent. ---
**Author:** ![RitterSport](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rittersport/32/6326_2.png) [@RitterSport](https://boards.straightdope.com/u/RitterSport)\ **Post date:** [January 2, 2025, 2:52pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/34 "2025-01-02T14:52:58Z")
Right, there are no CDOs of auto loan ABS (dog shit wrapped in cat shit, I guess) that I’m aware of. The AAA tranche of auto loans and leases really is AAA and have never defaulted, not even during the financial crises. ---
**Author:** ![jnglmassiv](https://avatars.discourse-cdn.com/v4/letter/j/f07891/32.png) [@jnglmassiv](https://boards.straightdope.com/u/jnglmassiv)\ **Post date:** [January 2, 2025, 3:01pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/35 "2025-01-02T15:01:29Z")
My first car, a 1968 Plymouth, only had a 5 digit odometer. They were not expected to last hundreds of thousands of miles. > [@msmith537](#): > > Not only do homes rise in value Yes but it doesn’t even need to rise. A home’s value remains substantially similar over auto-borrowing time spans when comparing the loan types. Meanwhile, the vehicle is worth half the purchase price after, say, three years of normal driving use. ---
**Author:** ![hajario](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hajario/32/171_2.png) [@hajario](https://boards.straightdope.com/u/hajario)\ **Post date:** [January 2, 2025, 3:24pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/36 "2025-01-02T15:24:47Z")
> [@jnglmassiv](#): > > Meanwhile, the vehicle is worth half the purchase price after, say, three years of normal driving use. In March of last year I sold my seven year old Civic with over 60k miles for 66% of what I paid. ---
**Author:** ![F.U.Shakespeare](https://avatars.discourse-cdn.com/v4/letter/f/aca169/32.png) [@F.U.Shakespeare](https://boards.straightdope.com/u/F.U.Shakespeare)\ **Post date:** [January 2, 2025, 3:33pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/37 "2025-01-02T15:33:53Z")
Hondas are good like that. In 2012, I bought a two-year old Fit for $10,000. When a cab driver t-boned me in 2017 and totaled it, my insurance paid me $8,600. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [January 2, 2025, 3:37pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/38 "2025-01-02T15:37:12Z")
Timing matters hugely. You bought at a time of relatively low prices and sold at a time of relatively high prices. In addition to, as said above, the pretty much industry-leading nature of Honda when it comes to slow/low depreciation. ---
**Author:** ![jnglmassiv](https://avatars.discourse-cdn.com/v4/letter/j/f07891/32.png) [@jnglmassiv](https://boards.straightdope.com/u/jnglmassiv)\ **Post date:** [January 2, 2025, 3:49pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/39 "2025-01-02T15:49:35Z")
Sure, you win some, you lose some and shame on me for making up numbers. There are better and worse times for that home purchase, too. Maybe that Civic sale was the popping bubble OP was talking about. Imagine being the chump that bought that overpriced thing! ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [January 2, 2025, 3:53pm UTC](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457/40 "2025-01-02T15:53:54Z")
> [@LSLGuy](#): > > Is to “coming crash” I’d ask: _what_ is going to crash? If you think the economy is going to crash, don’t short car loans, short the S&P500. If you think suddenly lots of people can’t pay their car loans and lose their cars but meanwhile the economy (and stock market) are humming along just great, then what third thing is supporting that dichotomy? This is the answer. If you’re not confident enough to short the SP500 right now, then you’re not really confident that the car market is going to crash. [Previous page](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457.md?page=1) [Next page](https://boards.straightdope.com/t/the-big-short-on-car-loans/1012457.md?page=3)