The Subprime Auto-Lending Credit Bubble Is Bursting

Tyler Durden's picture


Submitted by Pater Tenebrarum of Acting-Man blog,

Sub-Prime Car Loans See a 'Sudden Jump in Late Payments'

We have commented a few times on the slightly diffuse character of the echo bubble, which has infected a great many nooks and crannies of the economy. One of the areas which has experienced an enormous boom was the sub-prime auto loan sector. It seems however that the party in this sub-sector of the bubble economy is in the process of ending.

According to Bloomberg:

“A three-year lending boom to car buyers with spotty credit that helped push auto sales to a six-year high is starting to show signs of overheating.


The percentage of loans packaged into securities that are more than 30 days late rose 1.43 percentage points to 7.59 percent in the 12 months ended September 30, according to Standard & Poor’s. That’s the highest in at least three years, the data released last week by the New York-based ratings company show.


“We’re at this inflection point,” Amy Martin, an analyst at S&P, said by telephone. “Now that they are opening the lending spigot, it’s only natural that losses are starting to rise.”


Underwriting standards began to decline amid five years of Federal Reserve stimulus that set off a race for higher-yielding assets, spurring a surge in issuance of bonds tied to subprime auto loans. That breathed life into a car-finance business that had contracted in the wake of the credit crisis, attracting new lenders and private-equity firms such as Blackstone Group LP with cheap funding and high margins.


Delinquencies on subprime auto loans are likely to have increased more during the fourth quarter, the holiday period when consumers typically stretch their budgets, according to S&P. That’s poised to increase losses that bondholders will take from defaults on the debt, which stood at 6.92 percent at the end of September after falling to as low as 4.15 percent in 2011, S&P data show.


“Many lenders have told us that their performance in recent years exceeded their expectations,” Martin wrote in a report last month. “We are now hearing that they expect losses to trend upward to more normal levels this year and next.”




Subprime lenders have found cheap funding in the bond market, with $17.6 billion of asset-backed securities tied to subprime auto loans issued last year, more than double the $8 billion sold in 2010, according to Barclays Plc. About $3.6 billion of the securities have been offered this year, according to data compiled by Bloomberg.

(emphasis added)

We wonder of there is any pie Blackstone doesn't have a finger in these days… Anyway, it seems investors in these loans – after enjoying above average returns for a good while – must now brace for growing losses. That 'underwriting standards have declined' is really no surprise – that is what happens when the Federal Reserve prints wagon-loads of money and pressures short term interest rates to zero. In fact, this decline in lending standards was arguably one of the main goals of the policy.


It Always Starts Somewhere …

However, what interests us about this development is mainly this: it shows that the credit bubble is beginning to fray at the edges. Every downturn starts with a seemingly innocuous report about things 'suddenly' and 'unexpectedly' going wrong in a relatively obscure corner of the market. We find ourselves reminded of how sub-prime real estate credit troubles began to show up for the first time in February of 2007, leading to the often repeated mantra that this particular disturbance in the force was 'well contained'.

That is however never how it works – in the end, it is all one big interconnected market. When troubles begin to show up at one end of it, they soon tend to  begin to spread.


repo order

A car repo notice – at least the repo sector can expect a boom now.



Good-bye overpriced SUV piece of junk – it was nice to know ye while it lasted …



One should certainly keep both eyes open henceforth; more anecdotal evidence of this type is likely to emerge in coming months, especially if the Fed continues with its 'QE tapering' course. Once problems become visible in one obscure corner of the low grade credit markets, it is often a warning sign for the entire market and economy.

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Fri, 06/13/2014 - 18:57 | 4855191 Jack Burton
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Bottom line of economic expansion by credit expansion. In the end, the debt and interest must be serviced. In order to service these debts, people need income. To get income, most people must work. Wages are down, jobs are down, full time work is down, job security is down. So then, HOW do we service this debt? Oh, I forget, Nobody Could Have Seen This Coming.


Fri, 06/13/2014 - 19:01 | 4855200 kowalli
kowalli's picture

Wages are down ->people spend less->reduction in business ->jobs are down->Wages are down -> people spend less and so on 


Fri, 06/13/2014 - 19:10 | 4855234 Say What Again
Say What Again's picture

If these people had placed the money targeted for their car loan into SPY (and Calls on SPY), they could have paid off their car loan and possibly even bought a used maybach, like all the gansta rappers drive.

Fri, 06/13/2014 - 20:20 | 4855405 Thought Processor
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This is double good for GM right?







Fri, 06/13/2014 - 21:08 | 4855514 gh0atrider
gh0atrider's picture

"I HATE normal people"

~best quote from Repo Man

Fri, 06/13/2014 - 21:42 | 4855598 Ignatius
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"Normal people spend their lives avoiding tense situations.  Repo Man spends his life getting in to tense situatons!"

Fri, 06/13/2014 - 21:56 | 4855643 max2205
max2205's picture

Walk away special.....cheaper than .....oh fuck it

Fri, 06/13/2014 - 22:07 | 4855679 Cliff Claven Cheers
Cliff Claven Cheers's picture

As a debt collector I loves me a good economic downturn.

Fri, 06/13/2014 - 22:09 | 4855683 NoDebt
NoDebt's picture

You have a bright future ahead of you in that case, Cliff.

Fri, 06/13/2014 - 22:42 | 4855711 Cliff Claven Cheers
Cliff Claven Cheers's picture


Sat, 06/14/2014 - 10:19 | 4856407 Chief Kessler
Chief Kessler's picture

Being a repo-man is intense

Fri, 06/13/2014 - 22:26 | 4855727 NuckingFuts
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UFO's are really time machine..... I think a lot about this kind of stuff.

Fri, 06/13/2014 - 21:45 | 4855608 stacking12321
stacking12321's picture

that's not even close to the best quote from repo man!

and i think you're off a bit:

"Bud: Look at those assholes, ordinary fucking people. I hate 'em."


my favourite:

"in the end, i blame society! society made me what i am!"

Sat, 06/14/2014 - 11:49 | 4856591 Ariadne
Ariadne's picture

If there's just some way to find out how much the motherfuckers owe, and making them pay.
Jesus Christ, Bud. They're winos. They don't have any money. You think they'd be bums if they did?

Fri, 06/13/2014 - 21:10 | 4855521 NoDebt
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"It ain't no joke, if you don't pay that note!"  - Janet Yellen

Fri, 06/13/2014 - 19:09 | 4855233 surf0766
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Every 3 year old from Guatemala who walked 1000 miles to the boarder will be given free camaro's for life from the Communist Union owned GM where when they become of working age they will be given a life time job making flat grey  cobalt's without steering wheels that work.


Forward !!!!!!!!!!!!

Fri, 06/13/2014 - 20:46 | 4855463 cossack55
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I thought they just recalled all Camaros.

Fri, 06/13/2014 - 21:27 | 4855555 rosiescenario
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They did, but as part of the government's support GM program, all those cars will be purchased by the Feds and then given away to illegal aliens as they cross the border....of course the fatality rates associated with those cars is just an added bene.

Fri, 06/13/2014 - 21:36 | 4855579 NoDebt
NoDebt's picture

"Every 3 year old from Guatemala who walked 1000 miles to the border"

Great opening line.

Does anyone else smell a bit of a reverse "fast and furious" in this?  That sonofabitch in the White House CAUSED this crisis, on purpose, and years from now, long after it's too late, the truth of it will come out.  If I'm wrong about this I'll eat a new Camaro, bolt by bolt, in a nice 10W30 sauce.

Fri, 06/13/2014 - 18:59 | 4855196 Sticky Wicket
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The only solution is to buy more stocks.

Fri, 06/13/2014 - 21:05 | 4855505 Al Huxley
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Good for you, that's the spirit!

Fri, 06/13/2014 - 19:00 | 4855199 NOTaREALmerican
NOTaREALmerican's picture

Lots and lots of high-end automotive bling in Sacramento Ca.     People are really hurtin' bad here. 

Fri, 06/13/2014 - 19:19 | 4855257 surf0766
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When is Kalifornia become part of Mexico?  I can't wait.

Fri, 06/13/2014 - 19:32 | 4855288 NOTaREALmerican
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It might become part of China or Malaysia first.  

Fri, 06/13/2014 - 20:02 | 4855365 Bunga Bunga
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I guess the collateral already migrates south.

Fri, 06/13/2014 - 21:25 | 4855552 rosiescenario
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As a Kalifornian, that would be far better than being still connected to D.C.

Sat, 06/14/2014 - 12:40 | 4856700 Bollixed
Bollixed's picture

You're the fuckers that keep sending Pelosi to DC. You're a major cause of what's wrong inside the beltway.

Fri, 06/13/2014 - 19:01 | 4855201 Carpenter1
Carpenter1's picture

Bubbles are blowing up everywhere, and politicians/bankers are in full time cover up mode. They will continue to buy every burst bubble until their fiat becomes worthless.

Fri, 06/13/2014 - 19:04 | 4855214 RhoneGSM
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REPO MAN was hysterical. Highly recommended.

Fri, 06/13/2014 - 19:12 | 4855240 Row Well Number 41
Row Well Number 41's picture

One of my favorite movies, and definatly my favorite sound track, it just gets better with age.


Fri, 06/13/2014 - 19:37 | 4855301 Cugel
Cugel's picture

I blame society.

Fri, 06/13/2014 - 20:00 | 4855356 Hobo Sapien
Hobo Sapien's picture

The more ya drive, the less intelligent ya are.

Fri, 06/13/2014 - 20:51 | 4855472 mrpxsytin
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I was m talking with an accountant of a large logistics company. He said that the truck drivers were little better than apes. Hence why modern couriers and truck drivers are under constant direction by their GPS nannies.

Fri, 06/13/2014 - 22:56 | 4855776 Hobo Sapien
Hobo Sapien's picture

=) We're trading quotes from Repo Man - SEE IT if you haven't.

re: truck drivers - I've known & dealt with both extremes and, yeah, many of them are apes, like that chimpanzee that chewed a lady's face off, the 911 call is on YT but I can't recommend it. A friend of mine, smart fellow, went through the training a year ago, scored so well that they hired him as a trainer right off the bat. He goes along with new trainees on their first runs. Boy does he have some stories.. Sounds like a lot of psychos in that business, and not just the drivers, yard bosses too.

Sat, 06/14/2014 - 03:26 | 4856047 HungrySeagull
HungrySeagull's picture

Shove it.

Satellite communications allow for tracking of high dollar million plus loads out of Mckesson of Memphis to distribution for hospitals and surgery centers of narcotics, controlled and schedule drugs of all kinds that keep you alive.

There are some truckers who are too stupid to do the job, others are too sexually full of themselves and are carriers of STD's

Others are not that bad drivers but only last 90 days before they are replaced.

There are a few like me who have been in this long enough (<30 years) to matter. We. Are. Not. Apes.

Truck payments several thousands dollars a month, Fuel payments three times that amount. Cargo revenue twice that amount each month.

Way better than hairy apes.

Sat, 06/14/2014 - 11:25 | 4856525 MachoMan
MachoMan's picture

One of my favorite jobs was working part time for a trucking company...  I did mostly desk work and a smidgen of dock work.  The truckers would come in and tell stories that I would have paid to hear...  from vietnam stories to escapades in the whorehouse, few ended without a chuckle.  One guy would always come in and tell me that "we're going to start a mobile whorehouse and put it in the trailer; I'll drive it around and you handle dispatch and the books.  We'll drive it to all the local factories on payday."  I hope he went through with it, he'd probably be retired by now.

But yes, most of them are apes...  There were no women working there, as I suspect they all retired from their sexual harassment lawsuits.  It was basically a frat party every day.  As soon as the boss left of an evening, there were dock races, prank calls, you name it.  Good times.

Fri, 06/13/2014 - 21:07 | 4855510 insanelysane
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I ain't going to be no repo man!

You already are kid, you already are.

Fri, 06/13/2014 - 19:05 | 4855216 kchrisc
kchrisc's picture

A client of mine does "collections" and I warned him when he crowed a few years ago about how much money he was making that the next time would be different. He contemptuously told me "We can always make them pay." To which I responded that the next time their would be nothing to "collect" from them.

He asked me about that conversation yesterday. Wanted to know "exactly" what I meant by "different."

I have an idea that more and more people are just telling him and his "collectors" to get bent or, "You can't get blood from a stone."

One of his employees told me that they "bought" a bunch of debt, a "bet the firm" amount, and it is not "performing" very well. Much lower "collection" rates than previously.


"This time IS different."

Fri, 06/13/2014 - 20:18 | 4855399 Yes_Questions
Yes_Questions's picture



and default brings inquiring minds to the fact collectors can go fuck themselves.


especially on amounts not secured or part of a .Gov Garanteed Student loan.


There are rules and they must be followed.  


Fri, 06/13/2014 - 21:53 | 4855634 BlackChicken
BlackChicken's picture

Just tell the 'collectors' they need to verify the debt before you can speak to them or answer their letters. They will freak out and probably break several aspects of the FDCPA, then you can sue them, and they turn it over to another collector. Rinse, repeat...

Sat, 06/14/2014 - 09:33 | 4856331 corporatewhore
corporatewhore's picture

fyi--the legal term is "validate" not verify.  

Sat, 06/14/2014 - 11:28 | 4856533 MachoMan
MachoMan's picture

Yes, but the collection process will only be streamlined in the future...  it's the same thing that's happened with tax sales here, less time to contest, less time to redeem, etc.

Fri, 06/13/2014 - 19:06 | 4855219 surf0766
surf0766's picture

Das Racist

Fri, 06/13/2014 - 19:07 | 4855222 Salt
Salt's picture

I can see it now, many trees falling on delinquent loans. Don't worry banks, you're in good hands with...

Fri, 06/13/2014 - 19:08 | 4855229 starman
starman's picture

Repo man shows here we come again.

Fri, 06/13/2014 - 19:12 | 4855241 Kassandra
Kassandra's picture

Sorta explains seeing a lot of people who don't look like they have two nickles to rub together driving new or almost new high end cars. Been looking for a new rig as we just about can't cobble much together anymore on the old one. Not sure what to do.

Fri, 06/13/2014 - 19:15 | 4855249 oooBooo
oooBooo's picture

Buy a repo'd vehicle at auction.


Fri, 06/13/2014 - 21:28 | 4855560 NidStyles
NidStyles's picture

Buy a 10 year old Honda for $2K and worry about something else?

Fri, 06/13/2014 - 21:58 | 4855647 stacking12321
stacking12321's picture

i've never bought a new car, and lately starting to indulge in thinking about it.

but, every time i do, i think, buy a new car, or get another 1000 oz of silver?

silver wins every time.


Fri, 06/13/2014 - 19:14 | 4855244 Yen Cross
Yen Cross's picture

    If you take my wheels, I won't be able to get my welfare check, and my "Ba,daby,Dad" will pimp my ass on the rickshaw again.

    Public Skools?


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