LTV On Vehicle Financings Plunges To All Time Low, As Equity Check On Car Purchases Hits Record $6,668 Per Car From ($116) In 2006

Tyler Durden's picture

One of the more important data points in today's G.19 (consumer credit release) statement was that the Loan To Value ratio on vehicle financings (at least those reported by the government) in January dropped to 80%, from 81.8% in December, which is a new all time low in the history of the series (chart 1). The recent swing in this ratio has been very perplexing: the plunge from 95.1% in July 2008 just before Lehman to 84.9% in September of 2009 is explainable: after all lending virtually ceased and banks were cautious with lending out any money absent a material depreciation buffer (and yes, at the peak of the credit bubble, the LTV ratio hit 100.4% in September 2006, when banks were willing to finance more than the value of the car, confirming just how much excess credit money was sloshing around courtesy of a cranking securitization ponzi and a humming shadow banking system). Then following the March 2009 lows, LTV ratios once again moved higher and peaked in December 2009/January 2010. They have been in decline ever since, and the decline has accelerated over the past 4 months, when it was 86.5% in September, down to 80% in January. In absolute terms, this means that in January the amount financed was $26,673.4 per car, the lowest since February 2009. Yet this has happened even as the average car prices continues to rise, and the implied January 2011 car price was $33,342. In other words, the average equity check that buyers have to finance is a record $6,668! (chart 2)

Perhaps the unwillingness of banks to fund purchases at a higher LTV is precisely the reason why GM recently launched GMAC 2 by offering zero percent down loans for most of its models. After all the best way to avoid bank scrutiny is through your own captive financing arm. Then the only question remaining is why are banks suddenly, and so dramatically, leery of offering car loans at such a discount to historical LTV (the long term average LTV is 90%): either, this is a confirmation that the bulk of responsible borrowers have already taken advantage of bank lending services, and the only remaining ones are those who have to pledge far more collateral, or, less probable, banks are suddenly concerned about the residual value, accelerated depreciation, and the quality of recent car production. Either way, this trend confirms that more and more "subprime consumer" focused car companies will need to launch their own captive financing companies (and hope to become TBTF in the process) or else see sales plunge as fewer consumers can afford the record money down check of nearly seven thousand.

Historical Loan To Value:

Comparison of Amount Funded, Car Price, And Equity Check:

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Sheriff Douchenik from AZ's picture

GM has an answer for all that - "GM Financial Considering Auto Lease Program for Near-Prime and Subprime Shoppers"... that's gotta be healthy right? Everyone deserves a car right? I'd hate to be at Ford right now and trying to figure out how to compete against this.


Michael's picture

This is for information purposes not for discussion. Talk amongst yourselves. Morris shows his true colors here. 

Dick Morris Calls Ron Paul "Horrific", Hangs Up On Peter Schiff

FrankIvy's picture

Morris is an idiot, and I like Shiff, but Shiff was being rude.  He invites the guy on his show, asks a question, then starts preaching to the guy.

TruthInSunshine's picture

Dick Morris?


The guy who worked in the Clinton Administration, and who was snorting coke with a hooker and letting the hooker listen in on his phone call with Bill Clinton?


That guy is a real class act.

Michael's picture

That made my day TIS. Not too many people know about that.

Yes We Can. But Lets Not.'s picture

My recollection is that the 'media' went after Morris, ridiculing him for his supposed penchant for sucking on toes...

malusDiaz's picture



Thats how much I paid for my beater of a truck. Total.  That a monthly payment for a car for some (OMFG, SRSLY?!)


The difference in price pays for the 20-25mpg (10$ gas for a year for it to even remotely make sense to get a different vehicle),


Silver & gold with the rest to pay for gas later, last thing I need is an ego stroking car.

Danielius's picture

I'm with you.  Me and my completely paid for used Subaru that I bought with cash. Meanwhile, I bought a bunch more silver...  having started my buying at 7 per ounce, and I have no plans to stop buying at 35....

TruthInSunshine's picture

You guys are either on your way or have arrived at destination 'freedom.'

For those who may be unaware (most here are aware), many of my wealthiest clients drive decade old cars with 100k and even 200K+ miles on the odometers, many drive 90s or 80s era Ford pickups or Subarus or Buicks, they eschew debt or borrowing of any kind, and they have no fear of anything.

My poser clients are here today with a 75k to 130k German uber-saloon, and almost to a person, gone tomorrow, broke.

Deleveraging and having the discipline to resist debt slavedom is a truly liberating experience.

Mentaliusanything's picture

No  better thing has been written

My 62 VW after three rebuilds is a big middle finger up the establishment

Whats not to like. its carbon friendly after all these years. in fact its more than that it gets 45 MPG at 60MPH and pulls more Tits than a mechanical milker.

VW= volks Wagen = peoples car = he may have had a vision and been insane= but your living the dream in a BMW= Big money worries

P.s. If this shit keeps going I'm in line for Miami, TOTALLY, the Whole Fucking Peninsula, Cheap as chips  (really)

zhandax's picture

I refuse to drive crap.  I tool around in a 540i.  However, it is a '94 that I paid around $4k cash for in 2006.  I passed 180k miles a couple of months ago.  I also pass damn near everyone that pisses me off.

zhandax's picture

26mpg at 100mph on 100% gas when I can find it.  Most of what is available is that 90% bullshit now.

Yes We Can. But Lets Not.'s picture

Taking on debt to drive is one of the worst financial moves folks make.

GreenSideUp's picture


Added bonus: less taxes to feed to the beast.  

fbrothers's picture

You hit the nail on the head.

fbrothers's picture

They need to ban leasing. Unless it is a fleet lease, or true commercial lease. Otherwise a lease is just a balloon payment. Getting a buyer in over his head. The dealers are putting them in autos they are unable to buy on a normal 48 or 60 month loan. Stop the stupid.

Mentaliusanything's picture

I have always like a judge with Attitude.

Speak Bitch

Pants McPants's picture

Banning something outright is never a good idea.  A more workable solution would be to allow each financing arm to make up their own minds regarding financing options.  Absent gov't intervention (which I realize is a stretch these days) my guess is most financing arms would demand higher down payments as a start.

Oh regional Indian's picture

On supression: 

Laws to suppress tend to strengthen what they would prohibit. This is the fine point on which all the legal professions of history have based their job security.

  • Bene Gesserit Coda


So, yes, bad idea to ban outright. It's a known fact that all the systems in theUS (and nwo th eworld) have been set up, not to convenience the buyer, but to fleece him.

What should be banned is fine print.

Ban fine print, make a pne page contract, in bold letters, and then see how things change.


fuh-q's picture

Yes, please stop the stupid because you don't know jack about leasing...... accounting, tax, leagal, nor otherwise.

FrankIvy's picture

I know that every car I've ever bought and owned has cost me less per mile, when all was said and done, than any lease ever offered.  A lot less.

Course, if you don't want to ever touch your car, you buy undependable models, you don't like being seen in an older model, and so on, then a lease may be for you.

A lease is an expensive way to achieve those goals, for the most part.

If it's a business-related expense, then that may be different.

Id fight Gandhi's picture

2-3 year leases make sense. If you get a factory subsidized one, the payments are low, the upfront is low and you turn it in and walk away at the end.

You never have to worry about repairs costing and problems with resale.

Most American cars were horrible leases as they lost so much value Their payment structure was as high as regular financing.

Out of warranty repairs and maintenance gets expensive fast. And many cars now drop in value so much, why be a bag holder of little equity?

Only makes sense if you don't run up mileage and take decent care of the car.

Caviar Emptor's picture

I did it both ways: leasing and purchasing with dealer financing and bank financing. Even did it both ways with the same model car, 3 years apart. I always found leasing to be better, contrary to the prevailing opinion. 

What you say is true: resale values are never quite what you hope. Leasing monthlies and upfronts are way cheaper. And depending on your use of the car, tax advantages are better with leasing. Mileage and maintenance never a problem and dealers want to keep the car in optimal shape for resale. The only risk is if you total the car you're liable for the whole value and insurance won't cover it. 

Long-John-Silver's picture

Buy 1,200 shares of GM stock and get a free Chevy Volt!


Rockfish's picture

average equity check that buyers have to finance

You mean "cash down" like out of my pocket after food, housing, beer, cigs, cable and O yea taxes.

nope-1004's picture

Ya, the word "check" is confusing.  I think it would be better worded as

average equity amount that buyers have to put down....

Pants McPants's picture

The patterns continues: market tries to correct....privileged institutions swoop in to further pervert them.  All in the name of benevolence, too, as I'm certain among the reasons offered in support of new financing arm(s) will be the "helping the little [poor] people" canard. 

Vehicle fires were common in California when I lived there from 2003-2007.  Folks with underwater auto loans would go so far as to hire people to torch the vehicles in order to collect insurance premiums.

Here's a thought.  Want to help someone?  Tell them no, or demand more money down.  Most people are stupid, sure, but they are smart enough to understand put options on underwater vehicle loans.

John McCloy's picture

I saw a commercial this week for 0% no interest furniture purchases through 2015 and without credit score consideration.

   I saw a Hyaundi commerical last month claiming if" You have $199 and a job you to can own a brand new car" 

   Nothing has changed. It is super bubble redux for what caused 2008. This is what we all predicted would happen when you do not reign in credit expansion and qualifications.

samsara's picture

I saw a commercial this week for 0% no interest furniture purchases through 2015 and without credit score consideration.


It might also imply that you can't push a string.


If you "Print" money and nobody takes it, is it Inflation?

Id fight Gandhi's picture

The 0% furniture has been around a long time. Its a gimmick and no matter how good your credit is they accrue like 30% if it's not paid until the end.

Many retailers got themselves into the finance business too. That's why they bug you for a credit card when buying batteries or clothes. Those store cards are high interest. Why sell someone $100 of stuff when you can make that plus interest?

Saxxon's picture

Good post John McCloy.  My wife and I are going 180 degrees in the other direction.  We're buying beautiful old wood furniture (American-made) from auction houses in the S.F. area.  The quality of the wood and the workmanship cannot be reproduced; and we are getting these pieces at as little as 1/10th what you would pay for some Chinese cheesewood in an Ikea. 

And paying cash.  And paying cash.

There is still that fever for shiny new things but when it wears off we will be in a good position.

FrankIvy's picture

Of all the taints of the late portion of the oil age that I despise, particle board furniture is close to top of the list. I banned it from my home years ago.  I'd rather have no furniture than PB furniture.

Can2001's picture

where is the next dealer? that chickens are for free , or???

acidradio's picture

It's time that people, oh, fixed their cars properly so that they didn't have to be replaced so often on ponzi-scheme money. If you take good care of a car it will last quite a long time. Instead people don't even lift a finger to do the most basic maintenance. They don't know how to, they don't care how to. It isn't all that hard! You have a generation of young men who don't even know how to check the oil on their own car. How pathetic is that?

Devout Republican's picture

Heh, you got that right!  My 20 something college grad doesn't even know how to use an abacus or even a slide-rule! Kids these days...

torabora's picture

They can't fix their houses either. Not even the easy stuff like screens, paint, locks, garbage disposals, bug spray. They hire people to cut their lawns. They don't own a lawnmower. They don't even have tools. pathetic

the grateful unemployed's picture

its cheaper to hire the guy with the tools.

barbarika's picture

Very true! As a new home buyer in 2006, I invested in the lawn mower, blower, edger etc. After one year, realized that it is much cheaper and more comfortable to pay 20 bucks to the mexican.

FrankIvy's picture

BS.  But, if you bought a home in 2006, I'd expect you to think paying someone to cut your grass is a sensible decision.  Do you pay somebody to heavily fertilize it as well?

Confused's picture

It seems, you are implying that because of his home purchase in 2006, he is lazy or just decadent. 


Come down off your pedestal. 

max2205's picture

Next 30 year adjustable car loans and of course securitization. Weeeeee

trav7777's picture

gonna mean less sales,

r101958's picture

Read Atlas Shrugged to find out what happens when the Gov't supports one company over other companies in the same business. We are seeing it here. How about all the recalls of involving foreign cars lately? Nothing like a little free negative advertisement focused on your competition.

Quaderratic Probing's picture

"I'd hate to be at Ford right now and trying to figure out how to compete against this."

 Don't fight it Ford should send everyone to it... GM goes under Ford wins

Clockwork Orange's picture

It is quite simple, Tyler my friend. 

The only thing that depreciates faster than a new car driving off the lot is the US dollar under the guidance of the Bernank.

Thus, by increasing the amount of cash put down, you are actually slowing your depreciation rate.

One can only hope that the cash was secured from a credit card advance from Bank of America or JPM who will thusly be told to pound some sand up their a$$ come collection time.

What_Me_Worry's picture

Banks are tripping over themselves to hand you out their ZIRP money if you have a high credit score plus a pulse.

We went in with 2.9% 60 mos from the bank and the dealership STILL managed to find lower non-incentivized financing(2.65%), on top of $6,000 off the sticker.  They did ask for $2,000 down, though.

Three TV's in the car.  I don't know why anyone would need that many in one car.  I can't just be rolling around in town with just two, like some loser..forget that.

prophet_banker's picture

sarcastic liberal "we all deserve a new car, its our right, good thing goverment motors stepped in"


self righteous conservative blames the poor "these subprime wankers don't deserve the blessings of the banks, that should be left to us investors"


and M2 shrinks for everybody but wall street, meanwhile M3 balloons for Wallstreet; derivatives balloon to 1,600 trillion, and the bankers say "it just grew that way, we deserve to be able to cash in those chips, and must because the MARKET NEEDS US, NEEDS THIS LIQUIDITY" in the casino capitalism known as the kleptocracy.


THE REST of us are saying, just how "off balance" are all these of balance sheet transactions?

hucklebeary hound's picture

Could this be further indication of deleveraging consumers? I turned in two leased cars in the last three months, and replaced them with a new and used car for my family. I put $7500 on both, and plan to pay them both off within 12 months thanks to Ben's wealth effect that has doubled the value of my company stock grants that vest in a few weeks. I have great credit, & the banks practically fell over themselves competing for my loans.