TikTok has gained recognition for not only showcasing undiscovered talents but also providing real-time insights into the economy. However, the platform's latest trend regarding the deteriorating used-car market raises concerns and potentially indicates a broader recession.
As a seasoned observer on TikTok, I have noticed a pattern in which trending topics and user comments can serve as early indicators of business shifts. In 2022, the app was flooded with "I got laid off" videos before the wave of tech workforce reductions. Similarly, during the pandemic, videos capturing long lines of consumers at retailers hinting at the strong financial performance of new videogames and PC graphics cards.
Unfortunately, the current trend on TikTok takes on a more pessimistic tone. Users are increasingly searching for phrases like "falling car prices" and "unable to afford car payments." On my main feed, I come across videos showcasing used-car auctions for repossessed vehicles. Commenters express fear regarding auto loan delinquencies, suggesting that consumers are facing difficulties in repaying their loans.
Contrastingly, just a year ago, the feed was filled with car buyers proudly boasting about their hefty $1,000 monthly car payments.
This trending pattern on TikTok sheds light on the challenges faced by the used-car market and potentially signifies a larger economic downturn. As investors and industry observers, it is important that we pay close attention to these indicators and consider their implications for our strategies moving forward.
The Ominous Outlook for Semiconductor Companies
The recent earnings season for semiconductor companies has been marked by a gloomy outlook. Notably, leading chip makers serving the auto and industrial markets, which were previously considered strong sectors, have given disappointing forecasts that have surprised Wall Street.
During late October, executives at ON Semiconductor (ticker: ON) revealed that higher interest rates for car loans had started to negatively impact auto demand. They also expressed their expectation that the uncertain macro environment would persist into the next year. Lattice Semiconductor (LSCC) management, on the same day, acknowledged weakness in the auto market during the third quarter and stated that it had carried over into the current quarter.
The auto sector had been one of the key areas holding up over the past year. Consequently, a slowdown in this sector indicates that the Federal Reserve's rate hikes are finally beginning to affect demand in the larger economy.
However, based on current data, the so-called "auto bubble" has yet to burst.
According to Edmunds, in the third quarter, 17.5% of car buyers with financing had a monthly loan payment of $1,000 or more, setting an all-time high. The average monthly payment was $736. While this trend cannot be sustained indefinitely, it remains to be seen when the default cycle will begin and how severely it will impact car owners, as well as car manufacturers and dealers.
In October, Cox Automotive reported a 4% decline in their Manheim Used Vehicle Value Index compared to the previous year. While this could be a seasonal change, it is very possible that prices will see a significant drop in the following months. It's worth noting that while TikTok is mostly associated with entertainment, it is increasingly becoming a reliable source of valuable insights as well.
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