Transcription
The US economy is not even growing, really. 50 basis points outside of AI. So clearly, there have to be pockets of weakness. We're going to focus on one of those pockets today with Lakshmi. Consumers are broke. It's definitely impacting across the board. Steve, for instance, credit card 90-day delinquency has doubled. We're going to see further deterioration in cars. We're going to see further deterioration in credit cards. We're going to see further deterioration in buy now, pay later. People are stressed, and that's going to have an impact on the economy. Consumers are collapsing, and I will just lay it out for you.
[Music]
Hi, this is Steve Eisman, and welcome to another edition of the Weekly Rap. This is for the week ending October 3rd, 2025. And today, we have a special guest, a returning guest, Lakshmi Ganapathy of Unicus Research, who's going to talk to us today about the health of the consumer and specifically what's going on in the auto sector. And then we're going to finish up and talk about the meme stock Open Door. Welcome again, Lakshmi.
Thank you, Steve. It's good to be back.
So, before we talk, Lakshmi, let me just say a couple of intro words, and then we're going to get right into it. So, the only thing that happened this week that was of any relevance that was really important was that the United States government shut down. And did the market care? It did not care at all. It proceeded to go up, and both NASDAQ and the S&P are at all-time highs again. But what I wanted to do today is focus a little bit more on the economy. I, I looked at some statistics, Lakshmi, before, um, coming on here, and and I think they're kind of revealing because it reveals that the US economy is kind of a, it's, it's a tale of two cities. So, if you look at US GDP in 2024, it was 29.18 trillion, and the current estimate for 2025 is for 1.8% growth. So, if you multiply 1.8% times 29.18 trillion, you get something like 530 billion. And then, if you take a step back and ask yourself, how much is Meta, Google, Amazon, Microsoft, Oracle, yada, yada, yada, spending on AI infrastructure? It adds up to about 400 billion. So, if you deduct the AI expenditures out there, and there's probably more, but let's just stick with 400 billion, the US economy is not even growing, really, 50 basis points outside of AI. So, clearly, there have to be pockets of weakness, and we're going to focus on one of those pockets today with Lakshmi, which is related to the consumer. Lakshmi put out a wonderful report on the auto industry this week, and I really want to go over it. So, Lax, why don't you just give us kind of a brief overview of your view of the state of the consumer, and then we're going to dig down into the auto sector because that's where some weaknesses really seem to be taking. And and before you start, just as an example, and we're going to talk about it, CarMax reported last week hellacious numbers, and we're going to touch on that. So, take it away, Laxby, give us a little bit of a broad overview of your view of the US consumer right now.
So, consumers are broke. The monthly budget math no longer works. Uh, Steve, when the COVID started, the stimulus money just completely hid the weakness in the consumer sector, and everything was fine. The reason everything was fine because student loan wasn't being reported to the credit rating agencies. I'm sorry, what wasn't being reported to the credit rating agencies? Student loan delinquencies. Student loans were not being. Student loan delinquencies weren't reported. And I think at some point, you know, credit card delinquencies weren't reported to credit rating agencies. I can't pinpoint exactly what time, but at the end of the day, the consumers are tapped out. BNPL, buy now, pay later, carried consumers and are still carrying consumers even today. And I wanted to talk about the hidden inflation steam. I mean, inflation is just not about the price of groceries or gas, uh, how much per gallon, but the hidden inflation is what, uh, is dragging the consumer. Uh, what I mean by that is auto service, insurance, property taxes, health insurance, auto insurance, and these have skyrocketed since COVID. Whether it's because of the weakness and lack of mechanics for the auto service, that's a different question. And the policy shifts are dragging the negative items back on the credit files. Student loan defaulters were being reported to the credit rating agencies, and that is impacting 250 points to 200 to 250 points drop in consumer credit.
So, what can you explain? Can you explain that a little bit better? What do you mean by it's, it's creating a drop in d, 250 points in consumer credit?
This is because people are paying their student loans back for the first time in years. Yes.
So, let me explain. During COVID, stimulus money came in in four separate installments, and it's around 800 billion or more stimulus money checks went to the consumers. So, some chose to use that money to pay down the debt. So their credit score went up. And then some choose to buy some nice fancy cars, and others did flipping the houses with that cash, whatnot. But as the stimulus money went away, so all these subprime consumers became prime, 702, 750, 800, because they got the check, because they got a check that made them look richer than they actually were.
I see. Yes.
And at that time, when they bought the auto loan, and when they, uh, spent more money in the credit card, and all the banks, they bundled those loans and put them in the asset-backed securities market. The reason I'm dragging ABS into this is because the credit score prime was an illusion. So, whatever the prime credit score that are sitting on the ABS are technically subprime.
So, let's just press F. So, what you're saying, I just want to clarify so everybody understands. So, what you're saying is you had a consumer who was sub, really subprime, got a check from the government which made them look better. So, now they're prime. They take out an auto loan, but in reality, it's when the, when the checks went away, they really reverted back to subprime. But in the ABS, they're, they're classified as prime.
Yes.
Okay. And when we go back to the car, more than one in five new car borrowers now pay more than $1,000 per month on their auto loan. One in five.
One in five. Okay.
And the loan, um, modifications that is there is an 84-month term loan for autos, 84 months with an interest rate of roughly 22 or 23%.
Wow.
As of Q2, and credit card delinquencies are 90 days up. It has doubled since 2021. So, 2021, it was roughly 3.7%, give or take.
Right now, it's close to 7%. But they've stopped going up. They kind of have leveled off, haven't they? Or are they still going up?
They're still going up. I mean, they, they are suppressing the delinquencies, the 90-day delinquencies. They are suppressing and modifying it, whether it's credit card or auto loan. The way they are doing it, and Steve, you know, 2007, '08, '09, um, they're doing it for the auto. So, consumers, according to our sources, are coming and saying, "We can't pay the auto loan, so take my car." So, banks are saying to the consumers, "Oh, we don't want your car. You need your car. Now, tell me how much you can pay per month, then we can modify your loan, adjust it as current, and kick the can down the road."
So, let's focus on the auto sector because there's a lot of things going on in the auto sector. And part of it is that during COVID, because everybody had so much money, people were buying cars above sticker. Yeah. And so, why don't you just talk about what that impact has had in terms of people being upside down in their loans?
Let's walk through the auto sector now. So, the problem with the auto sector, especially during COVID, is that a lot of OEMs got little greedy, a lot greedy. So, they manufactured a lot of cars, increased the price of the cars because there was money everywhere, too much liquidity, and people are buying Maserati when they can't even, in real life, afford a Honda. So, people are paying about the sticker price to buy the car. So, the dealers are increasing the price point so their margin can improve, and it's just, it's just went beyond, it went out of control.
What do you mean by out of control?
So, OEM started to stuff the channel with cars, and dealers were pushing the inventory to the consumers as long as the banks can write loans. At some point in 2023, 2024, dealers started to refuse taking on new inventory from companies like, um, Stellantis. And we are hearing, we heard chatter saying that OEMs were, at some point, quote unquote, blackmailing, saying that, "Hey, if you don't take my inventory, then I'm going to now give you the discount that I usually get." So, dealers started to take on more inventory that they can sell. And what they call in the industry is called lot rot, which means cars are in the lot, they are not selling. New cars are coming in. So, what happens is the price gets compressed. So, you have the used cars, you have the new cars. New cars' prices are not going down. Used cars' prices are going up because, uh, dealers are thinking, "Well, nobody can afford new cars, $50,000, $60,000, $70,000. So, they will come to the used car." So, used cars' prices are not going down. New car prices are not going down. Consumers just stopped buying them. So, volume is going down.
So, let's just walk through, like, who is this impacting from? Well, let's talk about CarMax, because CarMax reported about a week ago, and yes, they missed numbers. They took a loan loss provision, extra loan loss provision for older vintages. It was pretty ugly all around. What, what's your takeaway about the status of of the consumer and the used car market from CarMax's results? Because CarMax is a very big company in the used car business.
Well, CarMax has been, uh, surviving, and it's, it's been a used car company for a long time. As you said, the provision for loan losses was 142 million compared to 112 million in the prior year's second quarter. And the problem with CarMax is that they are saying 0 to 5 year inventory was partially offset by stronger sales in older, higher mileage vehicles. That means the people cannot buy the cars that are in the $30,000 range. They have, they want cars that are less than $9,000. And so, in other words, they can't afford to buy cars that are 0 to 5 years old. They need to buy cars that are 5 to 10 years old, because that's all that they can afford.
Yes. And this, this cascades into maintenance because cars running on the road, the used cars are average, say, 10 to 15 years or more, which means they have to maintain it, and the expenses of maintaining the used car has gone up. So, just people are just surrendering their cars and walking away because the banks don't want to take the repo. And this is, this is putting a lot of pressure on dealerships like CarMax, CarMart, and other small dealerships. Whereas Asbury and Lithia are still breathing. However, small dealerships are shutting down and suffering, and we will see more dealerships shutting down for the later half of the year.
So, give me your predictions for what do you think is going to happen to both the new car market and the used car market over the next six months to a year, given everything that's going on right now.
I, I think the dealerships are not going to take any more inventory, and, um, it's going to be a standstill. We will see a lot of write-offs in the sector in the dealership sector. Uh, we are hearing that there is more channel stuffing happening from OEM to the dealerships. And if you see, we are at the tail end of 2025, which means new cars for 2026 will be coming in, and we are hearing the 2024 models are still on the lot and not selling. So, I, I think the demand for used cars will be higher, especially for the price point of less than $10,000. Anything more than that, it's going to be a challenge.
So, Lakshmi, let, let's talk about who's going to get hurt. So, what you're saying is the only thing that's really going to move are older used cars. What's going to happen to the newer used car market? What's going to happen to the new car market? Let's walk me through, like, who's getting hurt here, given that the consumer, at least in your view, is getting pretty tapped out.
The consumer began to struggle, and they are struggling. And, you know, they are making, the dealerships are making modifications on the loan. Banks are trying their level best because nobody wants to take on the repo car, and, and that's, that's a problem. So, the focus is completely on the vintages 2022, 2023. They have high average selling prices, high APRs, higher payments, and still consumers can no longer do that. Not if that student loan defaulters, whether you want, whether you're going to pay your student loan back, otherwise you're going to get garnished, whether you're going to pay your rent or mortgage, whether you're going to pay your food bill, or whether you're going to pay the car.
Let's try and put this in, kind of, a bigger context. During COVID, you got big checks from the government. You didn't have to pay your student loan back. And now you don't have big checks from the government. You have to pay your student loan back. AI is coming. And I'm hearing that a lot of young people are having trouble getting jobs.
Yes.
What you're saying is the consumer is tapped out.
Yes.
So, sounds like what you're saying is, are we just talking here about the pain that's going to happen in the auto sector, or do you think there's more pain here that's broader for the consumer across the board? Like, where do you stand on this?
The, the pain is going to happen across the board. It's in the retail. It's in the buy now, pay later. It's definitely in the auto. It's definitely in the used car, and it's definitely impacting across the board. Steve, for instance, credit card 90-day delinquencies, as I mentioned earlier, has doubled. Q2 2025 saw 2.42 million unique repo assignments. 76,000 cars have been repoed, but the, the recovery rate is still less than 30%. On the cars, on the repo, it's far below that, the 41% we saw in the pre-2009 era.
I'm not following you. What do you mean 30? Mean only 30% of cars that that can be repossessed are being repossessed?
Yes.
Oh, people are getting killed getting when they go to repossess the car. Literally, literally getting killed. And this is, I mean, pre-2009, the recovery was roughly 41%, and it's one of the heaviest repo backdrops that we are seeing right now since the great financial crisis.
Okay. So, if auto goes first, let's play this out. So, what, what you're saying is in the next six months to a year, you're going to see higher delinquencies in auto. You're going to see more repossessions. You're going to see fewer sales. It's going to be pretty ugly. So, auto's going to be bad. There's going to be some price increases from tariffs. That's going to hurt the consumer as well. What's next? Where's the next pain point?
Consumers are collapsing. And I will, I will just lay it out for you. So, they are choosing between whether I can feed the family with this, which is whether spending the groceries, or whether I can use the car, right, or use public transportation because they can afford it. If they choose to use the car, then they have to say, "Should I let, if I'm defaulting on my student loan, should I let my wage to be garnished?" So, this is student loans.
I stop you for a second just because I'm not sure everybody understands this, that you cannot, if you file for bankruptcy, your student loan stays with you regardless. And so, the government can garnish your wages at any time when you're not paying back your student loan. I don't think everybody's aware of that.
Yes. Thank you for clarifying that, Steve. So, that is why, you know, it shifts. Cars are getting impacted, and people cannot afford food. They are, 25% of consumers are putting their groceries in buy now, pay later.
20. Say that again. That's very important.
25% of consumers. Okay, let me back up. 69% of the US population are living paycheck to paycheck. Okay. Consumers who are making money anywhere between 30,000 to 90,000 per year are suffering. That's where we are seeing red flags. So, let's, uh, assume that those categories have student loan debt. So, we are seeing 30 to 90,000, uh, per per year salaried folks will shift down in credit scope. And of the 69 people, 69% of the consumers who are living paycheck to paycheck, 25% of them are using buy now, pay later. It's a, it's a layaway for to buy food. Buying food.
So, 25% of the 69% of consumers are paying for groceries. Not they're just not paying for them. They're, they're kicking out a card and they're using Affirm as an example. Yeah. And they're paying, they're buying their food with buy now, pay later, which means they have basically two to three months to pay it back.
Yes. And here is the problem. Company like Affirm, Klarna, we heard they are using machine language model. Now, they're not looking at the FICO scores because FICO is focused on the past, how much you have paid, and based on that, it used to give you credit. But Affirm and Klarna are using language model, machine learning model, and they are tracking whether the consumers are having any overdraft in their checking account, whether consumers have any other delinquencies, whether they have defaulted on their student loans. They are using all those data to decide whether they should extend the credit to the consumers or throttle them.
Okay. Okay. And what are they doing now?
So, now they are, you know, we have incidents where when someone went to use buy now, pay later to buy groceries, their card got declined.
That's so interesting. This is a problem, especially with AI. You talk about AI a lot. All these lenders are using artificial intelligence and creating their own language model in monitoring consumers in real time. In real time. Consumer's financial health in deciding whether they should extend the credit or not.
From your anecdotal and the data that you're looking at, you see that at least with respect to the subprime near-prime consumer, we're going to see further deterioration in cars. We're going to see further deterioration in credit cards. We're going to see further deterioration in buy now, pay later. People are stressed, and that's going to have an impact on the economy.
They are. They are. They don't have the cash flow. We created a model where the credit card debt has increased nearly 50% from third quarter 2020 to second quarter 2024, and by 53% relative to third quarter 2021. That's additional 400 billion of additional credit card debt that now exists. This is not including BNPL. And the credit card companies like American Express, Chase, and everyone are cutting the credit availability for the consumers based on the credit scores dropping. So, if you are defaulting on your student loan, you are being reported to credit agencies, your credit score drops 100, 200 points, then American Express, Chase, or whatever credit card you might have, they will cut the credit availability. So, if you used to have a $10,000 line of credit, now you might have 4,000 based on their discretion whether you are a high-risk consumer or not.
So, you're pretty pessimistic about the health of the consumer and what impact that's going to have on the economy in the next, let's say, yes, 12 to 18 months.
Yes. We, if you're right, you know, sometime next year, it should be pretty clear that there's real consumer credit quality problems.
Yes. And what's very concerning is the market is doing just fine. That's because of all the consumer credit suppression. Student loan passed during pandemic. Everything passed. Credit was given freely, and now everything is taken away. Everything is, student loan defaulters are being reported to credit rating agencies. The lag is catching up.
I see. That's the problem.
Okay. So, it's been a long lag, and you, and you think that we're going to pay the piper.
Yes.
Okay. Let's switch gears for a second, 'cause I want to talk about a meme stock, Open Door, which is a stock that you years ago put a sell rating on when it was $35. Yeah. And you, I think you covered your short at like a dollar and a half, something like that, and you've walked away, but I'm sure you're up to date. So, why don't you tell people, first of all, what did, what does Open Door do? What happened to them, and why is it now this crazy meme stock?
Open Door is a fancy app-driven house-flipping company. Okay. So, Open Door started off as a SPAC. It's a house-flipping company that never made any decent money, and it's, I was surprised that it existed, and there is a certain group of people that are pumping this stuff.
Right. Before, before you get to the pumping, let's just go over what do they do? So, as from my understanding, what they'll do is a consumer wants to sell their house. Yes. Let's say they want to sell their house for, I'll make up a number, $400,000. Yep. Rather than go through the whole process of, you know, finding buyers, hiring, hiring realtors, etc. Open Door will just show up and say, "We will write you a check right now for $360,000." Done.
Yes. And that was the, and the, the business model was was supposed to be they'll, they'll fix the house up a little bit and they'll flip it within a few weeks to let's say $400,000 and then maybe make $20,000. I'm just making up numbers. That's basically the gist of it. So, that was the model. You put a short on it. Why didn't the model work?
The model didn't work because they are losing, they have been, at least since when we recommended it, losing $15,000, give or take, on every single transaction.
Every transaction.
Every single transaction. Can't make that up in volume.
Nope. They cannot. And, and the problem is, you know, it's like a Carvana. You, you want to sell the car, you don't want the hassle with it. You just, uh, sell the car, they write you a check. And that take, that model and apply it to housing, and people were happy doing it. Realtors were really frustrated, and the reason is the buyers were frustrated. And that's where I think everything broke down is because buyers who used to buy from Open Door Technologies realized that Open Door just put a lipstick on a pig, so to speak, right? They won't even paint nice carpet, and inside, uh, uh, it's just looks nice. And buyers repeatedly shouted with us that we have to spend over $100,000 or $50,000 after we bought the house. We realized that it's not up to the code. We have to do a whole top to bottom. You know, we have to get it approved by the city and so on and so forth. And Open Door did not care. And I think that is where the model broke down because after enough buying from Open Door Technologies, people stopped buying it.
Okay. So, the stock collapsed, it got down to 60 cents, and then a hedge fund guy gets involved and makes it into a meme stock. And why don't you tell everybody what's happened since then? Because the stock has gone basically from 60 cents to like $9 under this this meme campaign. Why don't you describe the meme campaign and what you think about it?
So, the meme campaign started, and I wasn't aware. And when it's all over the Twitter, I went directly to this hedge fund manager on a DM and asked, "Please explain to me what's the catalyst, what's your thesis? Explain to me what's the catalyst, like I'm a five-year-old. Explain to me the catalyst. Why do you think the stock will go to 100, 200, 500, and $800?" And his response was, "It was a cult. Look where Carvana was in December 2022. It was $4. We recommended Carvana. We wrote a cover at $4. We got out. And look where Carvana is now, close to $400. Open Door Technologies is like Carvana. It's a cult, and that's why it's going to go 800." That was his thesis. That was the thesis. So, he actually had the ability. He got rid of the CEO. He got a new CEO in. And what are you hearing about what, what these people are want to plan on doing with this company? Because it's, it's, you know, this is on Twitter literally every single day.
The reason that the stock went up, the reason everybody is thrilled is because Eric Wu, one of the co-founders, came back to the company. I think he bought 6 million shares in a private placement on September 10th.
At what price?
At $6.65. Okay. And that boosted the confidence of all the retail crowd. I mean, I go and talk about re, uh, saying that, "Hey, retail, be very careful in investing in Open Door Technologies. I actually know this company, researched it. It is not going to be scalable at the scale you were hoping for. It's not going to go 800." People can really get mean. How much culty is this talk right now, Steve?
So, what responses have you, what, tell me some mean things people have said to you when you've talked about it?
Well, that I am dumb. I don't know what I am talking about, and that I have a short position on Open Door Technologies, and I am badmouthing the stock to go down. And I repeatedly tell everybody that we do not trade on the recommendations we are making, out of compliance, and I have no interest in the stock. My reason for coming out and talking about this is purely for the interest of retail investors because retail investors just trust somebody who they respect because they ran a fund and they were successful and listen to them and just buy the stock. And I feel sorry for the retail investors because I have known a lot of retail investors, and I spoke with some of them during the SPAC craze, which is special purpose acquisition company craze. Companies like Cisco, Faraday Future, Cano, all of them went bankrupt, and all the retail investors lost a lot of their retirement. They took loans to buy shares. That's crazy. I mean, this is, I don't understand how it's legal for somebody to go and talk about a stock when he has a platform that a lot of people can listen to him and trade on that idea.
This is not the only meme stock out there. It, it seems to me, we could tie everything we've been talking about from the problems with the consumer to Open Door, which on the for surface don't seem to be really connected, but, but I think we can make a connection. Let's talk about this for a second. So, if you're right, consumers in trouble, and you know, they're worried about their jobs, young people are having trouble finding jobs. Y, and so people are kind of looking for get-rich-quick schemes, whether it's Bitcoin or it's Open Door, because their lives are getting so stressed, they're looking for, it's almost like a gambling casino. They're looking to, they're looking to roll the dice and hit seven every single time. Yeah. And so maybe Open Door is just another manifestation of the overall weakness in the consumer. And then, if this market ever cracks, people are really going to be in trouble. What do you think?
Well, AI is definitely is in the center of some of the valuations these companies are experiencing, especially for Open Door and any company.
How is Open Door involved with AI?
Well, they, they are saying they're using AI for to, to track the pricing, the workflow, and they wanted to make sure that they can seamlessly, um, integrate the AI model in, uh, figuring out the pricing and figuring out the inventory availability and all those things, but it still can't fix the business model.
And why can't it fix the business model? What is the flaw in this business model, Steve?
If you're going to buy a house, you don't want to buy it from an app. And, and, and that's, that's, that's the flaw. I mean, I, I just don't want to buy a house using an app. And you want to see the house. You want to see the house, and you might not like it. You might not like how the room is shaped. But, you know, when you see the picture, you can't swipe right or left because you know you can see a picture can be easily generated by an artificial intelligence software, and it might not be a real house. And I have one thing to add with artificial intelligence, because we hired recently engineers to run through some, uh, programming language models, machine learning models. They need programmers to get the accurate data. When companies like Open Door Technologies or other companies use AI to deal with the big huge amount of data, the problem is that artificial intelligence software are prone to have hallucinations. They will start creating numbers that's not there, and then they will start justifying the number they just grabbed out of thin air. So, if Open Door Technologies or anyone who's relying on AI to do anything at all, they need to make sure the data that's coming out of the AI is good, is correct.
Okay, Lakshmi, thank you very much. That was very educational, and I think we'll find out if you're right within the next six to nine months.
Thank you, Steve. Thanks for having me. Good night.
Thank you. And that's the Weekly Rap. So, last week on Monday, we dropped a really interesting interview with Dan Ives of Wedbush. We talked everything tech from AI to Tesla. It was a wide-ranging interview, and I would recommend you go back and take a look at it. And this Monday, we're going to drop an interview with the Bernstein chip analyst Stacy Rasgon, who covers all things chips. We talked Nvidia, Broadcom, and we finished up discussing what in the world happened to Intel. If you haven't already, please consider subscribing to our YouTube channel so you can receive these weekly wraps, our podcasts, and our master classes. Subscribing is the best way to help the channel, and we greatly appreciate your support. Also, be sure to check out our website, SteveEismanPlaybook.com. There you can easily access all our episodes and the financial literacy master classes. Check it out and see you soon.
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