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"Buying The Car Was The Worst Decision I Ever Made" - The Subprime Auto Loan Bubble Bursts

Tyler Durden's picture




 

It has been over six months since we first highlighted the growing deterioration in the quality of auto loans and mentioned the 's' word (subprime) as indicative that we learned nothing from the financial crisis. Since then, auto loans (and especially subprime in the last few months) have surged to record highs; and most concerning, recently has seen delinquencies and late payments spike. The reason we provide this background is that, thanks to The NY Times, this story is now hitting the mainstream media as subprime-quality car buyers (new and used) realize the burden they have placed on themselves thanks to exorbitantly high interest rates (and a rapidly depreciating 'asset'). As one car 'owner' exclaimed, "buying the car was the worst decision I have ever made."

 

As The NY Times reports, Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.

 

Deja vu all over again...

And, like subprime mortgages before the financial crisis, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans.

Exorbitant interest rates... (but still demand?)

The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent.

 

The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.

Will we never learn...?

In another echo of the mortgage boom, The Times investigation also found dozens of loans that included incorrect information about borrowers’ income and employment, leading people who had lost their jobs, were in bankruptcy or were living on Social Security to qualify for loans that they could never afford.

 

“It appears that investors have not learned the lessons of Lehman Brothers and continue to chase risky subprime-backed bonds,” said Mark T. Williams, a former bank examiner with the Federal Reserve.

One painful example...

Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.

 

“I am not sure how I got the loan,” Mr. Durham, age 60, said.

 

Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car.

It's different this time...(worse)

Autos, of course, are very different than houses. While a foreclosure of a home can wend its way through the courts for years, a car can be quickly repossessed. And a growing number of lenders are using new technologies that can remotely disable the ignition of a car within minutes of the borrower missing a payment. Such technologies allow lenders to seize collateral and minimize losses without the cost of chasing down delinquent borrowers.

 

That ability to contain risk while charging fees and high interest rates has generated rich profits for the lenders and those who buy the debt. But it often comes at the expense of low-income Americans who are still trying to dig out from the depths of the recession, according to the interviews with legal aid lawyers and officials from the Federal Trade Commission

Who is to blame? Nefarious dealers?

The dealers have an incentive to increase both the size and the interest rate of the loans.

 

The arithmetic is simple. The bigger size and rate of the loan, the bigger the dealers’ profit, or so-called markup — the difference between the rate charged by the lenders and the one ultimately offered to the borrowers. Under federal law, dealers do not have to disclose the size of the markup.

Or The Fed's financial repression money printing forcing demand into these risky securities?

Investors, seeking a higher return when interest rates are low, recently flocked to buy a bond issue from Prestige Financial Services of Utah. Orders to invest in the $390 million debt deal were four times greater than the amount of available securities.

 

What is backing many of these securities? Auto loans made to people who have been in bankruptcy.

 

The average interest rate on loans bundled into Prestige’s latest offering, for example, is 18.6 percent, up slightly from a similar offering rolled out a year earlier. Since 2009, total auto loan securitizations have surged 150 percent, to $17.6 billion last year, though some estimates have put the total volume even higher.

The end-result...

In another sign of trouble ahead, repossessions, while still relatively low, increased nearly 78 percent to an estimated 388,000 cars in the first three months of the year from the same period a year earlier, according to the latest data provided by Experian.

 

The number of borrowers who are more than 60 days late on their car payments also jumped in 22 states during that period.

 

As a result, some rating agencies, even those that had blessed auto loan securitizations with high ratings, are starting to question the quality of the loans backing those securities, and warn of losses that investors could suffer if the bonds start to sour. Describing the potential trouble ahead, Kevin Cole, an analyst with Standard & Poor’s, said, “We believe these trends could lead to higher losses and weakened profitability in a few years.”

Read the full disaster here...

*  *  *

One quick question... (rhetorical of course) - Why did the Federal Reserve stop reporting auto-loan LTVs in February 2011? After 40 years of doing so!!

Bloomberg has reported the average loan to value (LTV) for subprime auto loans has increased to 114.5% this year and the average loan-to-value on new cars rose to 110.6% (which would be the highest ever according the Fed's data... way beyond the 100.4% previous peak in Sep 2006)

*  *  *

As we concluded previously, it is so bad that even Morgan Stanley now gets it:

Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, a New York-based analyst with Morgan Stanley, wrote in a note to investors last month. The rise of subprime lending back to record levels, the lengthening of loan terms and increasing credit losses are some of factors that lead Jonas to say there are “serious warning signs” for automaker’s ability to maintain pricing discipline.

And who gets to eat the losses? Well, as we have previously explained, the bulk of consumer credit issuance in the past year, a massive 99%, has been sourced by the government to go straight into auto and student loans.

Which means you, dear US taxpayer, will once again be on the hook when the music ends.

 

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Sun, 07/20/2014 - 18:13 | 4981291 williambanzai7
williambanzai7's picture

Sun, 07/20/2014 - 18:24 | 4981323 Yen Cross
Yen Cross's picture

    I'm Joe Isuzu, and I approve that advertisment.

Sun, 07/20/2014 - 21:09 | 4981836 Buck Johnson
Buck Johnson's picture

It looks like we are about to go into another credit implosion real soon and that will take out the market.  Also Zero Hedge they don't have enough room on those airfields and car courts to repossess any cars for storage.

Sun, 07/20/2014 - 22:23 | 4982054 bunzbunzbunz
bunzbunzbunz's picture

Get free bitcoins once per hour at http://freebitco.in/?r=25727

Sun, 07/20/2014 - 23:31 | 4982241 ObamaDepression
ObamaDepression's picture

Screw bitcoins. Spend gold Goldbulliondebitcard

Mon, 07/21/2014 - 00:43 | 4982308 COSMOS
COSMOS's picture

Most useful class I ever had was high school autoshop.  Learned how to do a tune up and brakes on a car.  Then we also did CV joints, swap fuel pump, swap alternator, swap starter, and basic sensors like MAF and O2 sensors etc.  All my cars have been used and paid in cash, I have no monthly payments and can do most of the maintenance myself.  Can say that have saved thousands of dollars and time not having to wait around for my car to be serviced.  Dont get me wrong though, if its a big job like a clutch job or timing belt I'll take it in, but I always get three estimates and have an idea whats involved so I dont get ripped off.

I still fail to see how people that rely so much on cars know so little about them.  Oh well.  At my old high school they dropped auto shop to use that semester to give the kids an extra year of math ie algebra or geometry.  What a freaking waste of time.  Those kids would be better served by a shop class.

You get yourself a set of craftsman hand wrenches from 7mm to 20mm when they have a sale for like 30 bucks, then a craftsman 200 piece socket set with 3 ratchets for like 99 bucks (watch for the sales) and you have pretty much every tool you will ever need. The sockets and hand wrenches are guaranteed for life, never had any of them go bad on me.

Those tools come in handy if you ever build anything like a kids playset etc.  Or you want to make your own bunk bed set and bolt the pieces together solid.  The uses are endless, plus they sure are pretty to look at (I clean mine after every use lol)

Youtube is great for advice on stuff, great channels like Scotty Kilmer or Eric the car guy, pretty much cover everything you need to know.  You can get your engine error codes read for free at AutoZone etc...

I also agree that most of the Japanese cars from the 80s to current are rock solid and gorgeous cars.  We can thank the Japanese for forcing the entire car world to step up their game in reliability and styling.

 

Mon, 07/21/2014 - 01:07 | 4982391 Haus-Targaryen
Haus-Targaryen's picture

Yeup.  I have an 11 year old BMW, and I do all the maintenance to it on my own.  Super reliable little car, and having something to tinker on is fun as well.  

Also, trolololololol -- no longer a US tax payer .  

Mon, 07/21/2014 - 04:02 | 4982552 Arius
Arius's picture

yes, those low-income americans ... as greedy as the rich, just not as lucky to work the system...

the guy has not worked for 3 years at the hospital, yet he signs 35 thousands income ... yeah, the dealer told me we can #$%^ the bankers ... guess who the suckers is ... yeah go cry to the government.

Taking responsibility for your own actions has become a foreign word in American vocabulary

Sun, 07/20/2014 - 22:40 | 4982075 PT
PT's picture

So, you can't afford to buy a house because some idiot bid the price up to unaffordable levels, and you can't afford to buy a car because some idiot bid the price up to unaffordable levels ...

The idiot's house and car get repossessed because he can't keep up with repayments, then the idiot loses his pension because it was dependent on him paying off his house and his car ...

... It's 8pm.  Do you know where your "retirement money" is?
... maybe it has already been "retired" ...

Sun, 07/20/2014 - 23:13 | 4982205 IANAE
IANAE's picture

"FUND 'EM..."

 

Reported mantra of Angelo Mozillo & Co...will not cease until conduit funding mechanism is reformed - or eliminated - preventing the incremental misrepresentation of - and accountability for - risk accumulated from underwriting through to securitization.

If fees/commissions were paid as earned over the life of the loans it might slow things down a bit...

 

Mon, 07/21/2014 - 02:22 | 4982471 debtor of last ...
debtor of last resort's picture

No collateral shortage for this repo man bitchez.

Sun, 07/20/2014 - 18:25 | 4981328 economics9698
economics9698's picture

The 138 IQ MF's getting some payback from the 85 IQ MF's.  Don't you just love it?

Sun, 07/20/2014 - 20:43 | 4981767 Sam Clemons
Sam Clemons's picture

The 138 IQ MFs never lose.  They change the rules when they begin slipping.

Mon, 07/21/2014 - 04:31 | 4982570 pelican
pelican's picture

The 150 IQ's and over realize that 138 IQ's financial games have destroyed a Republic.

Sun, 07/20/2014 - 22:29 | 4982073 HardAssets
HardAssets's picture

If you thInk that, you don't have a 138 IQ.
The dumb always pay. Who do you think pays for bail-outs & those 'too big to fail' ?

Sun, 07/20/2014 - 18:35 | 4981364 Berspankme
Berspankme's picture

Yeah yeah yeah. You guys dont understand. GM is alive and Bin Laden is dead

Sun, 07/20/2014 - 19:38 | 4981579 Rentier88
Rentier88's picture

If you can't pay cash for it, you can't AFFORD IT!

Sun, 07/20/2014 - 22:34 | 4982081 HardAssets
HardAssets's picture

One thing you learn, no matter how nice & shiny when new, - after a few months it becomes 'just a car'.

Sun, 07/20/2014 - 19:51 | 4981620 johnconnor
johnconnor's picture

one of the best you have done... double round of applause for you sir

Sun, 07/20/2014 - 18:17 | 4981296 Smegley Wanxalot
Smegley Wanxalot's picture

196,000 miles on my 12 year old truck that runs like new (knock on wood) and looks like it only has 40k miles on it, and I have no intention of buying anything unless it gives up the ghost. 

Pussy is cheaper than a car payment, people.  And if you need a car to impress people, you have bigger problems than just credit.

Sun, 07/20/2014 - 18:26 | 4981333 economics9698
economics9698's picture

I try to keep a new car and a old car, both paid off, both working well.

Sun, 07/20/2014 - 18:40 | 4981383 CrazyCooter
CrazyCooter's picture

I was going to buy from this dealer ...

http://www.rustfreeclassics.com/

... but i scored a hell of a deal on a used truck (very low miles), but I still watch the site and may spring for a crew cab high boy one day.

Regards,

Cooter

Sun, 07/20/2014 - 21:36 | 4981910 Manthong
Manthong's picture

My 2000 Jeep looks like it has 40,000 miles on it.

Come to think of it, that’s because it only has 40,000 miles on it.

Mon, 07/21/2014 - 00:59 | 4982380 kchrisc
kchrisc's picture

Auto "max-age" laws in 3..2..

"Dear tax-victim of ours,

In order to support the FedRes ponzi further and to expand our coffers to enable us to make payments to the same, you must scrap your current vehicle and purchase another one. Please see the enclosed list of connected "salvagers" that will give you way below value it and then later give us our share of the proceeds as a "contribution."

Further, if we determine that you paid cash for your newer vehicle instead of financing it, we will be forced to audit you and of course find you guilty of "laundering" and then take all of your assets, including the aforementioned auto.

Thank you,

Your blood sucking leeches at the state house on behalf of our Ashkenazi financial masters."

Mon, 07/21/2014 - 01:05 | 4982388 OldPhart
OldPhart's picture

Don't know the exact mileage, the odometer clicked over a couple times, but my 48 F-3 Stakebed stills runs pretty well.

Sun, 07/20/2014 - 18:18 | 4981301 Jack4952
Jack4952's picture

The last time I purchased a NEW car was in 1979 and I paid CASH. That was also the last time I bought an American-built car; and it was a "dog".

Since then, I have purchased only foreign USED CARS (after inspections by trusted car mechanics) and always paid by CASH - and they were all wonderful cars.

Sun, 07/20/2014 - 18:26 | 4981330 robertocarlos
robertocarlos's picture

Did you buy any used cars manufactured in Russia?

Mon, 07/21/2014 - 03:16 | 4982520 RazvanM
RazvanM's picture

Yeah, a used T34.

Sun, 07/20/2014 - 18:20 | 4981307 NoDebt
NoDebt's picture

Shocking!  Banks extend expensive loans to vulnerable poor people, poor people accept them.  News at 11.

Mon, 07/21/2014 - 01:03 | 4982386 kchrisc
kchrisc's picture

And like the "printed" money scam on homes, they will run up the "loan" with tons of "collection" fees, then take the collateral, sell it for less than it's worth and then forever hound the poor debtor until they die or wise up and put the banksters to the guillotine.

 

"Debt is in the head of the beholder. A guillotine reduces debt."

Sun, 07/20/2014 - 18:21 | 4981315 hugovanderbubble
hugovanderbubble's picture

and STUDENTS LOANS BUBBLE?

 

Sun, 07/20/2014 - 18:33 | 4981356 yellowsub
yellowsub's picture

At least with a car, you can recoup some of the cost.  I don't think you can get a refund for college...

Sun, 07/20/2014 - 22:27 | 4982066 bunzbunzbunz
bunzbunzbunz's picture

If you get a degree that is even slightly technical or business related, it pays for itself within 5 years considering increased starting pay and promotion potential.  This is of course relative and differs widely based on your personality and work ethic. But holy shit - are there really people that think an English major is going to get them anything but a public school teaching job?

Mon, 07/21/2014 - 12:14 | 4983932 TBT or not TBT
TBT or not TBT's picture

Can't do much with my BSEE around here, or not directly.    OTH there are lots of H1Bs and green cards out here, and ethnic hiring preferences amongst that set.   Indians preferring Indians.  Chinese preferring Chinese.  Guys in their 40's considered past their prime.  Maybe it makes sense as a lot of the actual work is done in India and China.  

Sun, 07/20/2014 - 18:22 | 4981317 tickhound
tickhound's picture

Plus, ya know, we still let them crash, insurance costs $, registration fees, personal property taxes, the tires still go bald, and formerly easy shit to repair is now so complicated only the dealer has access to the "codes" ....

Other than that I can't complain. I'll have 9 whole months before marketeeeeers make me feel like I'm driving a hoopty again.

Sun, 07/20/2014 - 23:04 | 4982182 CheapBastard
CheapBastard's picture

Insurance? WTF is that? ~ 25% of Texas drivers have NO car insurance. I was hit by a girl in her 20's and when I asked for her car insurance and driver's license the ONLY ID she had was her frigg'n parole card from New Jersey. 

No driver's license from any state, no car insurance [goes without saying] and no other ID and no job. My insurance covered the entire damage but that pretty much is par for the course these days from what I see around me and what my insurance lady told me.

Just one more sign of deterioration.

Sun, 07/20/2014 - 18:24 | 4981321 robertocarlos
robertocarlos's picture

It has to be better than taking the bus.

Sun, 07/20/2014 - 18:24 | 4981325 Racer
Racer's picture

That's what you get when crime is handsomely rewarded, not just more of the same but even worse!

Sun, 07/20/2014 - 18:30 | 4981342 Elvis the Pelvis
Elvis the Pelvis's picture

 I just finished paying for my car.  I plan on driving it until I die.  I'm a broke dead dick.  Bitchez.

Sun, 07/20/2014 - 22:05 | 4981995 Blano
Blano's picture

TYLERS!!! Please ban this guy again please.

Sun, 07/20/2014 - 22:36 | 4982087 PT
PT's picture

Pretty soon there will be no new aliases left.  He will have used them all.

Sun, 07/20/2014 - 18:35 | 4981343 potato
potato's picture

Use synthetic oil (not synthetic blend), high quality oil and air filters (like K&N). Change oil and oil filter every 15 000 miles, clean cotton air filter every 50 000 miles. Use summer or winter tires (not all-season). Change spark plugs, coolant , transmission fluid (if automatic), and fuel filter every 100k miles. Change belts and alternator every 150k miles . Even your American car will run forever if you do that.

Sun, 07/20/2014 - 19:17 | 4981472 Citxmech
Citxmech's picture

It should be pretty obvious that performing basic maintenance as opposed to just letting it all go is going to make any machine last longer.  

Getting something that's not a complete piece of shit to begin with helps also.

Sun, 07/20/2014 - 22:48 | 4982144 TheMeatTrapper
TheMeatTrapper's picture

Brutha's don't change no oil in dey Chrysler 300  - they be puttin' rims on dat bitch. What da fuck is oil anyway? Shit I thought you had to put gas in the muthafucka to make it go!

Mon, 07/21/2014 - 00:02 | 4982281 Falling Down
Falling Down's picture

I worked in auto parts as side gig some years ago.

Brutha walks in, it's early on a Sunday morning. "Axes" for an oil change for its '89 Escort (this is '02, in Rochester, NY).

I had to explain to this dimbulb that, no, an oil change does not mean you "just add oil". I had to break it down stupid style to this kid that a person needs a filter and the correct oil.

A friend managed a parts dept at a local Toyota dealer for a few years, before moving up and on and becoming independently wealthy.

Black guy brings in an SUV (not sure which model, had a SOHC V6). Motor is seized and it's still under warranty @ around 32K or so miles. Manager tells a young tech to start some checks on it.

Motor won't turn, no matter how much brute force they try to use. Manager tells the tech to pull the valve covers.Sure enough, both cams had snapped. 

Manager calls customer, and proceeds to ask about the service history of the vehicle (there were no indications the vehicle had ever been back to the dealer after purchase). Owner proceeds to tell the manager he didn't think the oil ever had to be changed.

Dealer decided to eat the cost of a new motor, and sent the customer on his way.

 

 

 

 

 

 

 

 

 

 

 

Sun, 07/20/2014 - 19:08 | 4981473 Urban Redneck
Urban Redneck's picture

If you have a backup vehicle, or only put obscenely low mileage on your car, then use both synthetic oil and synthetic filter media (since it doesn't breakdown over time like paper filters, even the high end ones). I change the oil may be every other year on my US vehicles, since I'm rarely there, and they still run great.

Sun, 07/20/2014 - 18:31 | 4981344 Semi-employed W...
Semi-employed White Guy's picture

A 110% LTV subprime auto loan is the stupidest banker move I've ever heard.   And they are actually bundling these too???  Who in their right mind would buy paper "backed" by these loans???  Bath salt financing indeed!

Sun, 07/20/2014 - 19:18 | 4981517 buzzsaw99
buzzsaw99's picture

if it weren't for upside down car "owners" half the cars on the road wouldn't exist.

Sun, 07/20/2014 - 20:47 | 4981777 813kml
813kml's picture

I had the unfortunate pleasure of helping my mother with her yard sale this weekend.  She had pretty good traffic over the three days and I would hazard a guess that 75% of patrons rolled up in vehicles that were less than three years old.  The contents definitely didn't match the wrappers, most of those people looked and acted like they didn't have two nickels to rub together.

Subprime specials living paycheck (or EBT) to paycheck (and EBT).

Mon, 07/21/2014 - 12:23 | 4983995 TBT or not TBT
TBT or not TBT's picture

 Detroit is dead, Al Queada is flush, and the UAW is still holding America hostage, but at least we have plenty of late model cars in the hands of EBT dependents.   

Sun, 07/20/2014 - 18:34 | 4981358 Shizzmoney
Shizzmoney's picture

I've never bought a car

Sun, 07/20/2014 - 18:34 | 4981359 q99x2
q99x2's picture

You could probably pick up a used 1992 Toyota Corolla for under $1,000. Mine has lasted 21 years so far. It is still going strong. And, you can fix it yourself if you have to. I bought it in 1993 with 10,000 miles on it. You should only have to buy one car per lifetime.

Sun, 07/20/2014 - 18:38 | 4981374 Berspankme
Berspankme's picture

Citizen #4235671 Please report to re education camp.

Sun, 07/20/2014 - 22:30 | 4982077 bunzbunzbunz
bunzbunzbunz's picture

Ummm...how can EPS go up 10% per year forever if you only buy one car in your lifetime? 

Sun, 07/20/2014 - 23:12 | 4982201 HardAssets
HardAssets's picture

We have several cars in the family. The last one I bought new was a Range Rover. Nice rig, but a PITA. Can't work on it yourself. Parts & service are spendy. Lots of fancy electronics to go wrong. At least I paid cash, so owe no money on it. I prefer driving my old Dodge pick-up, actually. Also have an old Ford Bronco, but only use it during the hunting season. It has big off road tires & sucks gas like crazy. Think I'll relive my youth and buy a on-off road dual sport motorcycle for my next vehicle. Something that'll go anywhere, that I can work on myself, and gets 50mpg has its appeal. Have been away from motorcycles for awhile, so don't know if I'll go new or used on it. But, I'll wait till winter before buying.

Sun, 07/20/2014 - 23:31 | 4982240 CoolClo
CoolClo's picture

I purchased mine new in 1991 and its still running strong great with 159,000 on it.. Gotta love those Corollas that were made in Japan back in the day's..

Sun, 07/20/2014 - 18:38 | 4981365 yellowsub
yellowsub's picture

Because of the easy credit, I don't have that much of a bargaining power than I thought from car shopping a few days ago.  Doesn't help that it's the new year model with a bit of a short supply around this area.

I do need a new car since mine is 12 years old with a recent broken AC compressor and other issues so I guess I'll hold off for a few more months or possibly same time next year when my inspection comes up again.  If the weather in the NE was a heatwave still I'd probably already purchased one...  

Sun, 07/20/2014 - 18:51 | 4981416 ebworthen
ebworthen's picture

The E.P.A. shoving emissions inspections down every State possible is a backdoor way to push new car sales.

The poorest and least able to afford a new car or decent used car are the ones punished the most.

No more Grandpa's pickup or the old family wagon to get to work - buy a new car plebe!

Mon, 07/21/2014 - 01:17 | 4982406 OldPhart
OldPhart's picture

I had to smog my 2006 Chevy Silverado.  Sensors said I needed a new transmission and I couldn't pass a fucking smog check.  $4 grand later I get a new transmission, still have engine light on, but I pass the smog test.

And this truck has a sealed transmission, you can't change, or add, fluid.

Sun, 07/20/2014 - 21:56 | 4981970 Ginsengbull
Ginsengbull's picture

You can get a junkyard AC compressor for a hundred bucks.

 

Figure another to have it installed, evacuated, and recharged.

Sun, 07/20/2014 - 18:37 | 4981371 yogibear
yogibear's picture

How about they torch the cars before thier repo'd. Kind of icing on the subprime cake. Want your car? you can sweep it up.

Have it stolen and collect a commision. The repo man will never find it. 

Sun, 07/20/2014 - 19:09 | 4981477 Pure Evil
Pure Evil's picture

Nice revenge fantasy, but no matter what, you're still on the hook for the loan. The vehicle is just collateral until the loan is paid off.

In fact, even after they repossess and resell the car, you're on the hook for the difference between what they sold if for and what you owe on the vehicle.

What the insurance companies should start to offer is repossession insurance to cover the difference along with the insurance you can already buy to cover the difference between loan payout and vehicle depreciation when you drive it off the lot.

Honestly, the only way out is a nail gun and a life insurance policy that pays out after being suicided.

Sun, 07/20/2014 - 22:35 | 4982084 bunzbunzbunz
bunzbunzbunz's picture

They already offer that. It is nearly forced down your urethra everytime you purchase a car on a loan from a dealership. It is called GAP insurance. Like the revenge fantasist said, your car gets stolen, you collect replacement value, GAP insurance covers the rest to pay off the loan.

Though how stupid are you to take a loan out BEING TOLD your vehicle is ALREADY worth less than you are paying AS YOU SIT THERE BUYING THE FUCKING THING. But, boy did you get a great deal today...I've never seen my manager take that much off the price before.

Sun, 07/20/2014 - 23:37 | 4982248 HardAssets
HardAssets's picture

Your comment about a car being worth less than you paid for it reminds me of college. A guy I knew bought a car off a young Air Force officer whose wife was having twins. His wife told him it was time for a station wagon. So this college kid (who also worked as a mechanic) gets this beautiful black Shelby Mustang for a song. That car must be worth a helluva lot of money now.

Sun, 07/20/2014 - 18:43 | 4981391 Temerity Trader
Temerity Trader's picture

Can you say, "Loan Forgiveness"? Sure you can.  Those patriotic subprime borrowers are all that stands between GM and a second (and final) bankruptcy. They were asked to buy cars by CNBC, Wall Street and even the government encouraged them. They did their part, now they need help. Janet likely already has a loan forgiveness plan ready for the pres to sign off on.  The bulk of the loans will just be refi’d into 20-year notes at .1%. Win-Win and the party continues. GM stock soars on the news. If you bears think for one minute the Fed bankers are going to let this all fall apart…you are mistaken. “Whatever it takes!” said Mr. Dhragi, and he meant it!  Moar debt means more fun! More low-paying jobs, more illegals, prosperity for all!

Sun, 07/20/2014 - 19:11 | 4981485 Pure Evil
Pure Evil's picture

Krugman's wettest of wet dreams.

Sun, 07/20/2014 - 18:45 | 4981393 ebworthen
ebworthen's picture

So an acquaintance's Son, who was delinquent on two successive used cars in the past 3 years and had them both re-possessed, got a loan for $6,000 to buy some piece of shit truck with 198,000 miles on it.

Never mind that the kid is a dope for buying a truck with that many miles on it for $6,000 - they gave him the loan!

Surprise, surprise...the truck through a rod through the oil pan three weeks after he bought it.

Supposedly had a 30 day warranty, dealership told him to suck eggs, warranty was through finance company.

Finance company won't respond, put him on infinite hold every time he calls about the warranty.

Amurika!

Sun, 07/20/2014 - 18:53 | 4981422 FredFlintstone
FredFlintstone's picture

The poor in America get truly fucked. I was poor for awhile in college with a young family and then felt like I was for about 10 years after I graduated. 4 kids and 1 income will do that to you.

There are whole industries that prey upon the poor and unfortunate and it is truly a crime that the government turns a blind eye to. This country should be ashamed of itself.

Sun, 07/20/2014 - 20:12 | 4981671 post turtle saver
post turtle saver's picture

I read this as, "the poor get truly fucked"... yep

Mon, 07/21/2014 - 00:18 | 4982306 HardAssets
HardAssets's picture

'Govt turns a blind eye to it' - Are you kidding? At the highest levels, the govt & big business are the same. They work together to rob everyone else. The poor are easy prey because they look to govt for 'help' & they have few resources to resist. That's why the globalist crooks are working hard to impoverish the 99%.

Sun, 07/20/2014 - 19:22 | 4981528 world_debt_slave
world_debt_slave's picture

rubes and conmen, go together like a horse and carriage.

Sun, 07/20/2014 - 18:51 | 4981417 83_vf_1100_c
83_vf_1100_c's picture

  So they sell a $30k car to some loser who can't make payments and within a few months they re-po it. It's npw a $20k car. What little exorbitant interest they made is squashed by the depreciation.

Sun, 07/20/2014 - 21:53 | 4981961 Ginsengbull
Ginsengbull's picture

I figure it loses 20% of it's value by driving it off the lot.

Sun, 07/20/2014 - 18:58 | 4981438 Doctor Faustus
Doctor Faustus's picture

Caveat emptor. Whatever happened to personal responsibility for both good and bad decisions? Or has that been securitized as well?

Is it wrong to hope for the asteroids (I've given up on Divine flooding) to arrive sooner rather than later?

Sun, 07/20/2014 - 19:11 | 4981490 boattrash
boattrash's picture

Thanks Doctor, personal responsibility, with many new (and some used) car prices exceeding the amount of my home mortgage, I choose not to play into the game. If I can't save enough cash in 10-20 yrs to buy a car with cash, how the hell would I expect to add interest and pay it off in 2-6 years? There's no shortage of people making poor decisions, then crying you a river when it doesn't work out.

Sun, 07/20/2014 - 19:12 | 4981491 Urban Redneck
Urban Redneck's picture

Elizabeth Warren was supposed to save the retards from the big bad bankers... too bad she actually has a big PROPERTY of WALL STREET tramp stamp on her ass.

Sun, 07/20/2014 - 20:36 | 4981742 Berspankme
Berspankme's picture

Pochahontos has a strapon thingy going on with jamie and lloyd. It aint pretty

Sun, 07/20/2014 - 20:37 | 4981743 Berspankme
Berspankme's picture

Pochahontos has a strapon thingy going on with jamie and lloyd. It aint pretty

Sun, 07/20/2014 - 18:58 | 4981440 orangegeek
orangegeek's picture

oh this is definitely "economic recovery" news, wouldn't you agree yellen??

 

so now the banks own a ton of repo'd cars, but it's revenue that is now part of Q2 GDP

 

pull on it harder yellen - make it grow!!!!

Sun, 07/20/2014 - 18:59 | 4981443 potato
potato's picture

Because buying a security collateralized by loans with 16-25% interest is a great idea when you have no fiduciary duty and are "investing" other people's money.

Sun, 07/20/2014 - 19:03 | 4981460 Sudden Debt
Sudden Debt's picture

And after this it will be the subprime iPhone bubble that will pop and than it will be the subprime pack of sigarettes bubble that will pop and it will end when nobody will be able to buy anything anymore even on credit.
And than people will start to pull rikshaws to put food on the table.

Sun, 07/20/2014 - 19:04 | 4981462 stormsailor
stormsailor's picture

same game different day, just using cars instead of houses, and the student loan thing is a complete farce, some of the most undisciplined, below average idiots in history or being given loans to attend college backed by you and me.  i have found out that those loans are not just for tuition  but for housing, food, etc. etc.

 

someone told me that their niece got a student loan, and her father bought himself a new land rover with the funds.  it is a true story from someone i trust. so there is absolutely no oversight on any of these loans either.

 

i read another article where all grades at a certain university will be distributed by race.  so a diploma can  be further watered down to nothing, just as our high school diploma's were destroyed back in the 70's with social promotion and forced integration etc. etc.

 

we went from the finest public education system in the world in 1968.  to 24th as of last year, and some of the other initiatives i have seen show only a further erosion,  core curriculum and discipline with racial quotas will further erode our system until it collapses into the dust of the rest of our society.  

 

the federal reserve and corporations have captured all of our laws and regulatory agencies, and their least concern is that of the citizens of this land.  they allow their minions to carry out whatever social agenda as long as it does not conflict with their profits.  fleece them, divide them, control them, allow drug companies to poison them, pesticide companies to sicken them, plastics companies to feed them carcinogins.  nuclear companies to irradiate them, and an out of control government to detain or kill them without due process.

 

there will be a response, and i fear an extremely bloody and violent one.  what  will trigger it. i do not know, but i trust in the lord and daily pray for his vengeance to come and slice out the corruption and greed from the high to the low. i do not know what instrument he will use but i am smart enough to fear it.

 

something else that has disappeared from most of this world, the fear of god.

 

rant off

Sun, 07/20/2014 - 19:19 | 4981503 world_debt_slave
world_debt_slave's picture

yep, been driving my 1998 beast w/ over 245k miles for over 11 years, bought it for cash used in 2003. My credit score is 817 and got a new car loan for 18k at 1.49%. Went looking at cars. Fuck that overpriced new shit. I'm keeping my beast and buying more gold instead.

Sun, 07/20/2014 - 21:05 | 4981823 TalkToLind
TalkToLind's picture

But interest rates are at historic lows!  LOL.   I'm in a similar situation, my 2002 SUV will turn 200k soon.  It's been owned free and clear for almost a decade.  Isn't nice when your future belongs to you and not someone else?

Sun, 07/20/2014 - 21:52 | 4981953 Ginsengbull
Ginsengbull's picture

What brand of car is it?

 

My wifes 97 chevy lumina is still going with 150k.

Mon, 07/21/2014 - 10:18 | 4983254 world_debt_slave
world_debt_slave's picture

Gingsengbull, yep, mines a Chevy also. 1998 Astro mini-cargo van, V6 Vortech engine. RWD. Got me from Cali to the midwest a couple of years ago and still driving it today.

Sun, 07/20/2014 - 19:21 | 4981526 kareninca
kareninca's picture

Back in the 70s my mom insisted that we buy a VW bus camper. She was going nuts with being a bored miserable working mom, and this represented freedom.  We did go to Disneyworld in it.  However, it utterly destroyed my parent's budget for many years; those things were expensive.  At least the VW Thing was pretty cheap.  I have seen cars as a budget destroyer ever since.  My husband and i are still driving our first car; a 1996 Honda Civic bought new; it still runs perfectly.

Sun, 07/20/2014 - 19:22 | 4981530 world_debt_slave
world_debt_slave's picture

I wish I could find a VW Thing today.

Sun, 07/20/2014 - 19:27 | 4981540 conspicio
conspicio's picture

Something < $20K puts one in your driveway...

Sun, 07/20/2014 - 19:29 | 4981546 world_debt_slave
world_debt_slave's picture

thanks, buddy!

Sun, 07/20/2014 - 19:36 | 4981573 boattrash
boattrash's picture

I've seen a few around Arkansas recently at fair prices/condition. What region are you in?

Sun, 07/20/2014 - 20:54 | 4981789 conspicio
conspicio's picture

A Thing in AR is truly a sight to behold, no doubt...

Sun, 07/20/2014 - 22:53 | 4982157 boattrash
boattrash's picture

We're pretty fortunate, in that autos that have always been here are pretty much rust free. My daily driver, a big Merc, is still rock-solid, extremely comfortable, and one helluva road cruiser (at 24 years old). I wouldn't trade it for 2 new Rice Grinders, if I had to drive them on my 650 mile work commute.

Mon, 07/21/2014 - 10:18 | 4983246 world_debt_slave
world_debt_slave's picture

boattrash, live in the mid-west, I'll keep an eye out here, but thanks!

Sun, 07/20/2014 - 19:24 | 4981535 conspicio
conspicio's picture

Neighbor in foreclosure nearly 3 years. 30-ish months of monthly cure payments, public notices, and bullshit to the banks on his 2 jumbos on seven figure home. A few months before the withdrawl of foreclosure proceedings, wife shows up in a used QX56 and he is rolling in an Escalade (cringe). I ask him if he struck gold, he says no, wifes family bails him out of foreclosure for now (he's almost fifty, jeezuz) and the GM dealer was financing anyone and everyone when he bought both vehicles from them on some assclown finance plan.

He's the kind of guy that hovers over the grey territory of anything, and for fuck sake, this shit kills me a little at a time...and I take no solace in the constant cat of nine tails in my brain that I am the patsy. Every. Fucking. Day.

Sun, 07/20/2014 - 20:36 | 4981739 ironmace
ironmace's picture

I don't know how that guy sleeps.

Sun, 07/20/2014 - 21:49 | 4981944 Ginsengbull
Ginsengbull's picture

Just think about the way his wife's family feels.

 

They have to think about his sorry ass several times a day.

Sun, 07/20/2014 - 19:24 | 4981536 MeBizarro
MeBizarro's picture

What is missing here and is really the story is just how many people (especially those under 30) treat cars as a necessary utility at best and in many cases are quite content to not even have a car.  Evidenced by the dramatic increase in those getting their licenses well after they can and the percentage of car buyers who are under 30.  Numbers simply haven't rebounded since '08.  Part of it is economics but a lot of it is a generational shift in how people under 30 view cars & them as a status symbol. 

Never gave a sh!t about what car I drove and still get mocked for driving an '07 Civic at work next to a bunch of Audis, BMWs, and other high end cars.  Fine by me since cars are a cost sink and that car was paid off in cash back when I bought it.  Much rather use that cash to productive ends including accelerating mortgage payments and maintaining an Asian-household savings rate.

Sun, 07/20/2014 - 19:46 | 4981610 Seasmoke
Seasmoke's picture

Had a friend who bought a car, never made payments on it....drove it for many months......then has me call repo company and tell them where car is "hidden" in exchange for 1500.....paid cash in middle of street and told me I did the right thing....lol

Sun, 07/20/2014 - 19:49 | 4981618 Joke Heros
Joke Heros's picture

I've paid less for my (all used) motorcycle, 2 cars and 1 truck than most people pay for a new car. Insurance is lower, no fvckwad banker picks away at any payments, and if I get a ding or dent I dont go screaming to the gods about how unfair life is that my shiny new car got scratched.

Never understimate peoples ability to choke on debt, and then do it again when a new opportunity presents itself.

Long sleazy repo companies.

Sun, 07/20/2014 - 19:54 | 4981634 caShOnlY
caShOnlY's picture

Had a friend who bought a car, never made payments on it....drove it for many months......then has me call repo company and tell them where car is "hidden" in exchange for 1500.....paid cash in middle of street and told me I did the right thing....lol

I used to hate to hear stories like this since I figured I was the one paying for these scams through interest payments.  However these scams survive because of the nature of our monetary system - FIAT.  In a sound money system your friend would have been required to put down 20% his own money guaranteeing he had to make some attempt to pay for the vehicle or lose 20% immediately.  In the end we all paid nothing to watch GM get bailed out with more worthless FIAT.  We will never pay that debt back so I don't concern myself with it, I just accept it for the ponzi that it is and keep converting ponzified paper into PMs.

Mon, 07/21/2014 - 00:10 | 4982296 the0ther
the0ther's picture

GPS should put an end to that 

Sun, 07/20/2014 - 20:20 | 4981691 Offthebeach
Offthebeach's picture

Need another Cash4Clunkers program.. Get those still running cars out of the Sheeples hands. Maybe go full Japan and outlaw cars over 10 years old.
Get Home Land Security pulling serfs out of their 10 year old death trap, visually polluting, enemy of prosperity cars. Do it on the highway. Or.
SWAT roll through neighborhood at night and flash bang and dog shoot anyone with a "tenner".
Use those Iraq war MRAPS.

Sun, 07/20/2014 - 21:08 | 4981797 TalkToLind
TalkToLind's picture

Any US citizen who drives a car older than 10 years is a terrorist and should be sent to Guantanamo!

</sarc tag for you dumb government MFer's who might read this and think it is a viable idea.>

Sun, 07/20/2014 - 20:33 | 4981725 yogibear
yogibear's picture

The banksters are even hitting old people with reversre mortgages with high fees. 

It will be sweet to see the sub-prime loans blow up.

Sun, 07/20/2014 - 20:44 | 4981772 hooligan2009
hooligan2009's picture

are those the ones that are called home equity withdrawals (not loans as they neverhave to be repaid) advertized by the Fonz (Henry Winkler)?

Sun, 07/20/2014 - 20:53 | 4981791 Colonel Klink
Colonel Klink's picture

Henry Winkler, just another celebrity shyster.

A shyster /??a?st?r/ is a slang word for someone who acts in a disreputable, unethical, or unscrupulous way, especially in the practice of law, politics or business.

Sun, 07/20/2014 - 21:07 | 4981830 caShOnlY
caShOnlY's picture

advertized by the Fonz (Henry Winkler)?

yes, that's him.  we call him the "ponz" now.

Sun, 07/20/2014 - 20:35 | 4981732 Kirk2NCC1701
Kirk2NCC1701's picture

My insider friends at car dealerships tell me that they can predict with 95% certainty, which demographic and ethnic groups will or won't default.

The ones who will NOT default are certain Asians (Chinese, East Indian, Japanese, Koreans,Vietnamese), Jews and certain European - Americans (Dutch, German, Nordic, Swiss) and upper - middle class people of all ethnic groups.

Sun, 07/20/2014 - 20:43 | 4981768 hooligan2009
hooligan2009's picture

checks for irish, polish, italian, hispanic, african....compares to national demographic...hmmm...but aren't all minorities equal, perhaps thats just the upper-middle class...wtf..you mean the top 10%, 1%, after upper middle = upper = 0.1% by income or assets? why on earth would an upper middle class person want a car loan, oh...you mean any dumb upper middle class people.

Sun, 07/20/2014 - 20:50 | 4981780 Colonel Klink
Colonel Klink's picture

Where's Carl "shitty deal" Levin when you need him?

Mon, 07/21/2014 - 17:46 | 4985388 waterhorse
waterhorse's picture

assisting his buddy Lloyd in doing "God's work?"

Sun, 07/20/2014 - 22:37 | 4982096 AdvancingTime
AdvancingTime's picture

Many of the new cars hitting the road are really leases which show up as a sale, and many of them may be motivated because an automobile owner faced with a costly repair doesn't have money to put into their current vehicle. This allows someone in a weak financial position, such as those living on disability or student loans, to put themselves into an ego boosting vehicle that they cannot in reality afford, or need.

I contend that super low artificial interest rates are making much of this possible. If I'm correct, much of the idea of "so called pent up demand" is secondary. It should be noted even with surging sales US auto companies are "hyper boosting" the economy by producing more cars than are being sold causing inventories to build. More below on the subject of a shift in consumer spending that hints of problems ahead.

http://brucewilds.blogspot.com/2014/05/consumption-of-autos-healthcare-a...

Sun, 07/20/2014 - 22:46 | 4982129 creeko
creeko's picture

Long subprime bicycle market!

Sun, 07/20/2014 - 23:06 | 4982186 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The process of putting hamburger through the meat grinder and coming out with sirloin on the other end is amazing. Where can I buy a 'securitization machine' like the Wall Street banks have going? And how much do ratings agencies cost to grease for the triple AAA stamp? Does anyone know what kind of money S&P, Moodys, et cetera make?

Sun, 07/20/2014 - 23:49 | 4982267 hooligan2009
hooligan2009's picture

haha...excellent...reminds me of the south park episode about taking in food via your ass and shitting out of your mouth somehow

http://www.youtube.com/watch?v=hFFivMBBSWU

Mon, 07/21/2014 - 00:22 | 4982315 sunkeye
sunkeye's picture

I know I'm in late but just gotta say ... B7 you magnificent bastard you've done it again. 

Saw the pic first made me lol then scrolling down read the words LOL!  T/y for a really good lol.

(A chuckle to end a really cruddy week - Johnny Winter & James Garner dying.)

Mon, 07/21/2014 - 00:34 | 4982345 Joe A
Joe A's picture

History repeats itself and people are just plane stupid. Fool me once, shame on you; fool me twice, shame on me.

Mon, 07/21/2014 - 01:16 | 4982405 strangewalk
strangewalk's picture

Buying a new car is actually not necessarily a bad move. One, it helps the economy as even many foreign brands are mostly American made today. Then, the newer cars are generally much more fuel efficient and produce less pollution. Also, a new car can boost self esteem by telling the world you are maybe not a complete loser--sure it's phony and shallow but still works to impress the girls and make the neighbors jealous. Finally, many people will say the financial pressure of car payments is motivational, and besides, having a new car is fun. It really helps to know how to buy. Do your homework on dealer invoices and manufacturer's incentives and make your move on the dealership late in the evening toward the end of the month--for several reasons this is when they're under the greatest pressure to move inventory. Get everyone to like you, tell some jokes, set a relaxed tone and plead poverty, but behind the mask stay focused and mean as hell. I bought a new Toyota once, drove it for a year and sold it for exactly what I paid new. 

Mon, 07/21/2014 - 02:10 | 4982456 TalkToLind
TalkToLind's picture

If you want to impress your neighbors, tell them you own your house free and clear.  Tell them you have no car note.  Tell them you have no credit card debt.  

Mon, 07/21/2014 - 02:59 | 4982510 kareninca
kareninca's picture

Why would I want to impress my neighbors?

I want my neighbors to think that I'm poor, so they don't ask me for money or sue me.

Hmmmm, maybe I should tell them I have crushing credit card debt . . . .

Mon, 07/21/2014 - 03:13 | 4982517 Tall Tom
Tall Tom's picture

Giving your neighbors an image that you are poor still leaves an impression.

 

It may, or may not, be "positive" or "negative". But it is still an impression.

 

I am just so impressed by your ability to write coherently.

Mon, 07/21/2014 - 17:52 | 4985404 waterhorse
waterhorse's picture

Fuck what the neighbors think.  If you must have that car though, have a hefty down and go get pre-approved by a credit union that oversees financial tactics of member dealerships.  CU preapproval is like garlic or holy water to the dealership vampires.

Mon, 07/21/2014 - 02:10 | 4982453 blue gkm
blue gkm's picture

i buy my cars from craigslist cash. U can find a good deal but they move fast

Mon, 07/21/2014 - 02:11 | 4982454 blue gkm
blue gkm's picture

i buy my cars from craigslist cash. U can find a good deal but they move fast. pussy is cheaper than a car payment... that is the funniest shit i herd all day

 

Mon, 07/21/2014 - 04:27 | 4982565 cbxer55
cbxer55's picture

I have three vehicles, all paid for. Two pickups and a motorcycle. 1998 Ford Ranger, 2004 Ford Lightning and a 2006 Suzuki M109R motorcycle. 

Not planning on changing that any time soon. Do my own maintenance, don't pay anyone to lay a hand on them. 

No credit cards, no store cards, no gas cards. 

Rent and utilities only. 

That's my story, and I'm sticking with it.

Mon, 07/21/2014 - 05:20 | 4982595 notadouche
notadouche's picture

"I'm not sure how I got the loan"  Really.  I'm sorry but if you are too stupid to understand that you have to pay money back that you borrow and its more money than you know you can afford to pay back then perhaps you shouldn't take money "you don't know how you got".   On a positive note: "You Just May Have Won a Million Dollars"

Mon, 07/21/2014 - 10:11 | 4983214 Toolshed
Toolshed's picture

I guess unless you deal with the "blue collar" sector of the workforce regularly, as I do, it is difficult to appreciate the rampant ignorance present. The financial vultures are certainly aware of it. I have a co-worker who co-signed a refinance "deal" on his mother's home where he, his wife, and four kids lived along with his mom. This incident took place as the last housing bubble was in the process of bursting. He was very excited one afternoon, and when I asked why, he informed me he was picking up a big fat check after work. I questioned him further and he told me about the re-fi deal. It sounded like he and his loved ones were about to be royally screwed, so I advised him to read the docs carefully and make sure he got a good interest rate. He then informed me that he and his mom had already signed the papers and he didn't know what the interest rate was. All he knew was that the original mortgage only had a few years of payments of about $500.00/mo left, but the house needed a new roof and other repairs, which was the reason for the re-fi. The new payment was going to be around $1,100.00/mo, but he didn't know the duration of the loan. Needless to say, they got royally screwed.......by their own ignorance. No one lives in the house now. They stopped making payments and moved out over a year ago and the bank has not even begun the foreclosure process. The house has a new roof though! Unreal.

Mon, 07/21/2014 - 07:46 | 4982730 hibou-Owl
hibou-Owl's picture

So the GM dealer who stretched the truth to get the sale!!!!

Next liability issue for GM, or is it Teflon time. Bail out time for GM round 2.

Americans are DUMB, and Greedy.

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