Subprime Auto Loan Delinquencies Hit Record: Sell Carvana and Buy Copart Today!

"The auto loan landscape is teetering on the edge of chaos as delinquency rates climb to unprecedented heights. Data from the Federal Reserve and Goldman Sachs reveal that subprime auto loan delinquencies have rocketed past 5%, a stark milestone that surpasses the worst days of the 2008 financial crisis. According to Experian, 30-day-plus delinquencies over the past year have risen 40% among consumers with the lowest credit scores, signaling growing distress among high-risk borrowers."

"Skyrocketing car prices, coupled with elevated interest rates and mounting economic pressures, are stretching household finances to the breaking point, leading to a surge in missed payments. Prime auto loan delinquencies, while reaching a 15-year high, but short of the crisis-era peak, suggest a more limited ripple effect among borrowers with better credit. The Federal Reserve may also soon lower interest rates, offering a glimmer of hope, but with the likelihood of only a modest 0.25-point cut on the horizon, it's unlikely to provide substantial relief for overleveraged consumers."

"This brewing auto loan crisis casts a long shadow over all facets of the auto industry, but for used car retailers like Carvana ( NASDAQ:CVNA ), the problem could be especially acute and makes its stock a compelling sell. Copart ( NASDAQ:CPRT ), on the other hand, is in a sector that could do quite well from the crisis and its stock emerges as a strong buy."

Subprime auto loan delinquencies have surged past 5%, exceeding levels seen during the 2008 financial crisis and indicating acute stress among high-risk borrowers. Thirty-day-plus delinquencies for lowest credit-score consumers rose about 40% over the past year, driven by soaring car prices, high interest rates, and broader economic pressures. Prime delinquencies reached a 15-year high but remain below crisis peaks, limiting wider contagion. A likely modest Federal Reserve rate cut of 0.25 percentage point would provide only limited relief for heavily indebted consumers. The credit deterioration poses specific risks for used-car retailers while benefiting some auto-industry segments differently.

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