While many homeowners are struggling to pay their mortgage, a growing number of car owners and lessees are unable to make their monthly payment. The delinquency rate on auto loans 90 days or longer is up 29% compared to last year, and many are handing the keys over to their lenders.
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When Le Journal asked Toufic Srabian how the automotive market was doing, he was quick to answer. “Just this week, a friend who works in a car 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 the market is starting to cool down. Anything that is a bit expensive and requires financing will slow down development. Nowadays people fight over each other. If we list 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.
“There are more cars coming in than usual at the moment,” confirms Monica, receptionist at Enchères d’automobiles St-Pierre (Esp Ltee) in Lachine. When Le Journal contacted them, an auction was taking place. “Today, for example, we had many more vehicles. At the same time last year we had maybe around sixty fewer vehicles,” she says.
ESP AUCTION. The 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
Like other auctions, ESP Ltee also acquires vehicles from banks and creditors who receive cars from people who can no longer afford their monthly payments.
Overdue loans
The numbers reflect the slowdown in the automotive market. Equifax recently announced that the delinquency rate of 90 days or more on auto loans nationally increased by 29% in a year. “We are clearly seeing a significant increase here,” said Jean-Philippe Saumure, senior advisor at Equifax.
Auto loans are the Bank of Canada’s new concern. This has recently shown that in Canada, in addition to mortgage borrowers, other borrowers are also facing difficulties, especially those who have taken out loans for the purchase of motor vehicles. “In particular, default rates on car loans have exceeded pre-pandemic levels,” the bank recently emphasized.
Throw away ballast
Pierre Fortin, president of the financial restructuring company Jean Fortin, also confirms that car loans are increasingly the “ballast” that people in financial difficulties are taking off these days.
“I’m seeing more people handing in their keys than ever before. We told them, “This is probably the only time in your life you’ll be able to get back on a car deal.” If there are large sums of money at stake, it might be better to clean up and start again, he says.
“In a bankruptcy situation, you have the right to say: “I want to return my car.” And you are not liable for the damage suffered by the creditor,” assures Pierre Fortin. The dealers take care of it and send the car to auction. This is provided for by law.”
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