While many homeowners are struggling to make mortgage payments, an increasing number of car owners and renters are no longer able to meet their monthly payments. Default rates on auto loans 90 days or older are up 29% from last year, and many are handing over the keys to their lenders.
• Also read: The average price of a new car has increased by $15,000 in a year
• Also read: More and more young people are unable to pay their debts
• Also read: Clouds are looming on the horizon for the battery industry
When News asked Toufic Srabian how the car market is doing, his answer was quick. “Just this week, a friend who works at a dealership had to sell a car because the owner was no longer able to pay the bank,” says this director of Encan Groupe Gabriel in Montreal.
“We feel that the market is starting to cool down. Anything that is a bit expensive and requires financing slows it down. People are fighting over each other these days. If we advertise a car for $4,000 or $5,000, it sells very quickly. People no longer want to go into debt for expensive cars,” he adds.
“At the moment, yes, we have more cars than usual,” confirms Monica, a receptionist at Enchères d’automobiles St-Pierre (Esp Ltee) in Lachine. When News contacted her, the auction is in progress. “For example, we had a lot more vehicles today. At the same time, we had maybe sixty fewer vehicles last year,” he says.
AUCTION ESP. ESP Direct Car Auction in Lachine. Montreal, November 7, 2023. PIERRE-PAUL POULIN/LE JOURNAL DE MONTRÉAL/AGENCY QMI
Pierre-Paul Poulin / Le Journal de Montréal / Agence QMI
Esp Ltee, like other auctions, acquires vehicles from banks and lenders who receive cars from people who can no longer afford their monthly payments.
The numbers reflect a slowdown in the auto market. Equifax recently revealed that the nation’s auto loan default rate of 90 days or more jumped 29% in one year. “We’re clearly seeing a significant increase in them,” says Jean-Philippe Saumure, senior counsel at Equifax.
Car loans are a new concern of the Bank of Canada. This has recently highlighted that in Canada, in addition to mortgage borrowers, other borrowers are struggling, especially those who have taken out loans to purchase motor vehicles. “In particular, car loan default rates have exceeded pre-pandemic levels,” the bank recently pointed out.
Discard the ballast
Pierre Fortin, president of the financial reorganization company Jean Fortin, also confirms that car loans are increasingly the “ballast” that people in financial difficulties are relieving themselves of these days.
“I’m seeing more people handing in their keys than before.” We told them, “This is probably the only time in your life you’ll be able to get your car contract back.” When there’s a lot at stake, it might be better to clean up and start over, he says.
“In case of bankruptcy, you have the right to say: ‘I want to return my car.’ And you are not responsible for the loss that the creditor will suffer,” assures Pierre Fortin. Dealers will deal with it, send the car to auction. This is established by law.”