Will We Never Learn?

Tyler Durden's picture

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

Just Keep Dancing: Introducing The 97-Month Auto Loan

While many of us have been shouting about this from the rooftops for years now, with each passing day it becomes more clear what a terrifyingly gigantic powder keg we have created.  There is no debate that this will end in a compete financial holocaust, the only question is when and how.  As time progresses, the practices and desperation of the status quo to keep the sheeple in debt and consuming is getting increasingly insane.  We learn from the Wall Street Journal that:

The average price of a new car is now $31,000, up $3,000 in the past four years. But at the same time, the average monthly car payment edged down, to $460 from $465—the result of longer loan terms and lower interest rates.

 

In the final quarter of 2012, the average term of a new car note stretched out to 65 months, the longest ever, according to Experian Information Solutions Inc. Experian said that 17% of all new car loans in the past quarter were between 73 and 84 months and there were even a few as long as 97 months. Four years ago, only 11% of loans fell into this category.

 

Such long term loans can present consumers and lenders with heightened risk. With a six- or seven-year loan, it takes car-buyers longer to reach the point where they owe less on the car than it is worth. Having “negative equity” or being “upside down” in a car makes it harder to trade or sell the vehicle if the owner can’t make payments.

Hmmm, sound familiar?

Car makers have mixed feelings about long-term loans. They allow consumers to buy more expensive—and profitable—cars. But long loans may keep some people from replacing their cars, cutting into future sales.

I love how THAT is what they are concerned about.

Experts say there is an appetite for more risk because banks see limited downside in auto lending. The delinquency rates on car loans are near record lows, and used car values are at record highs. And if a buyer defaults, the bank can repossess and sell cars with limited losses.

Again, sound familiar?

Melinda Zabritski, director of automotive credit for Experian, said the greater availability of credit is helping the surge in new car sales. The percentage of subprime loans isn’t far below the record level of 2007, and the length of loans is growing, she said.

 

The length of loans has come a long way since Lee Iacocca, then a Ford regional manager, helped pioneer auto loans in the 1950s. He became a management star by developing a ’56 for $56 sales pitch. The idea: consumers could buy a 1956 Ford for 20% down and $56 a month. The loans were paid off in just 36 months.

Yep, we’ve come a long way alright.  All the way to a bankrupt Banana Republic run by insane, immoral and extremely dangerous oligarchs and Central Bankers.

Full article here.