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DoJ Subpoenas GM Over Subprime Auto Loans

Tyler Durden's picture


While we are used to the daily flashing red headline from GM on recalls, today's was a lot more concerning:


We have warned of the surge in subprime auto-loan lending (and lowering standards and rising delinquencies) but this move by the DoJ should be very concerning. Once investors began digging into the details of subprime mortgage deals in 2007, the drastic credit risks reality was exposed very quickly... we fear the same in auto loans.


The OCC has warned...

Auto-loans are surging... Subprime auto-loans were up 10-fold in 2013...


As OCC reports,


Auto lending remained a highly competitive product segment, as strong growth continued through the end of 2013.




Banks reported year-over-year growth of 11.3 percent in the third quarter of 2013 and 12.9 percent in the fourth quarter of 2013 (see figure 18). Banks continue to hold a sizable market share of outstanding loans of $250 billion, or 31 percent of the total auto lending market.


But risks are rising... Signs of Risk in Auto Lending Beginning to Emerge 


Across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. Loan marketing has become increasingly monthly-payment driven, with loan terms and LTV advance rates easing to make financing more broadly available. The results have yet to show large-scale deterioration at the portfolio level, but signs of increasing risk are evident. Average LTV rates for both new and used vehicles are above 100 percent for all major lender categories, reflecting rising car prices and a greater bundling of add-on products such as extended warranties, credit life insurance, and aftermarket accessories into the financing (see figure 26).



As we have numerous times...

Of course, this is not the first time we have discussed this... As we discussed here "Auto Loan Delinquency Balances Rise 24% YoY":




And here...

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.

We suspect the DoJ investigation stems from this

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

*  *  *

Of course, the biggest irony is that it was the government itself that has been forcing GM to aggressively push NINJA loans onto any deadbeat consumer with mirror-fogging skills. And now it is going after GM for doing just that...


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Mon, 08/04/2014 - 13:07 | 5044435 syntaxterror
syntaxterror's picture

Government Motors. How did that bailout work out for ya? Funny how bond restructuring laws don't apply to GM but apply to Argentina...

Mon, 08/04/2014 - 13:11 | 5044468 Jannn
Jannn's picture

Chinese Gold Demand 1063 MT YTD, Total Chinese Reserves Reach 15,000 MT

Mon, 08/04/2014 - 13:25 | 5044536 NoDebt
NoDebt's picture

If GM was smart they wouldn't even try to deny any of this.  They should just make a statement that owning a car is everyone's basic human right.  That really wouldn't leave Holder any place left to go with this.  What's he going to say in response?  "No, it isn't"?  

Mon, 08/04/2014 - 13:29 | 5044559 pods
pods's picture

Those Escalades won't sell themselves.


Mon, 08/04/2014 - 13:31 | 5044567 knukles
knukles's picture

What's wrong with those sub-prime loans?  They were for sub-prime cars....  I mean whatthefuck is they bitchin' about?
Fair's fair

Mon, 08/04/2014 - 13:53 | 5044692 BurningFuld
BurningFuld's picture

Don't know about the US, but in Canada they are running ads: 84 months @ ZERO interest.  They must be in a very desperate position 'bout now.

Mon, 08/04/2014 - 15:24 | 5045128 nidaar
nidaar's picture

Soon they are gonna offer money for buying their shit. They are being paid by guaranteed tax money anyways... NALP coming with NIRP.

Mon, 08/04/2014 - 13:33 | 5044578 IANAE
IANAE's picture

GM Financial f/k/a Americredit was acquired by GM pre-IPO in 2010 and was always a subprime auto finance company. 


Not clear they are after GM...

Mon, 08/04/2014 - 13:44 | 5044641 mr1963
mr1963's picture

That's what this is about, it's about preventing repo's from the overextended borrower. This is a stealth wealth transfer in action. The borrower will get to keep the car, the loan originator will have to write it off. This was planned years ago, and is just coming around now. Free automobiles for everyone except anyone who might be able to pay their bills.

Mon, 08/04/2014 - 13:58 | 5044731 SethDealer
SethDealer's picture

@mr1963, You nailed it

Mon, 08/04/2014 - 14:09 | 5044786 Freddie
Freddie's picture

Our overlords just want GM to give the cars to O's people.  If GM-UAW refuses to give loans then they are redlining.  The police state wants GM to give the vehicles to O's peoples.

Mon, 08/04/2014 - 13:37 | 5044602 Bossman1967
Bossman1967's picture

yes but the price keeps skyrocketing down. let's just buy some paper gold it's the fools gold of today or am I the fool????

Mon, 08/04/2014 - 15:31 | 5045157 caShOnlY
caShOnlY's picture

Chinese Gold Demand 1063 MT YTD, Total Chinese Reserves Reach 15,000 MT

great comment, befitting for a topic showing how America attains its wealth: DEBT.  China has gold, America has debt.   Which one would you bet on?

Mon, 08/04/2014 - 13:12 | 5044470 kliguy38
kliguy38's picture

just lining up the sheep for slaughter.....hehehehhehe.......this shit never changes

Mon, 08/04/2014 - 13:13 | 5044471 Looney
Looney's picture

Eric Holder's subpenis hits GM…


Mon, 08/04/2014 - 13:20 | 5044509 Duffminster
Duffminster's picture

When is ZERO HEDGE going to do an analysis of the impact of SEC rule 2a-7 amendments on the situation with shortages in the 2 and 5 year treasury and repo markets.  Here are the two related articles (both from Bloomberg).  A correlation with potential consequences would be very informative I believe:


Half-Trillion-Dollar Exodus Magnifies Treasury Bill Shortage


Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar

Mon, 08/04/2014 - 13:27 | 5044550 NoDebt
NoDebt's picture

Ask and you shall receive.  Actually, you ALREADY received.  There was an article about it last week.

Mon, 08/04/2014 - 13:48 | 5044552 LawsofPhysics
LawsofPhysics's picture

Yes, interesting, I second this request.  Although I doubt anyone (aside from myself) was dumb enough to buy treasuries at the begining of the year.  Yes, I was buying up until about a month ago.  starting to sell now.  Folks around here probably don't touch bullshit government paper.  I couldn't resist simply because I don't see how the U.S. government (at least with it's current liabilities) can afford higher interest rates.  We will sell some .gov paper and invest in companies that make riot gear now.  Somethings got to give...

Mon, 08/04/2014 - 13:45 | 5044648 Dr. Engali
Dr. Engali's picture

Old news.... we've been talking about this for months.

Mon, 08/04/2014 - 14:16 | 5044820 ClowardPiven2016
ClowardPiven2016's picture

the bail out actually worked quite well...haven't you seen the kickass factories GM has built in China, Mexico and Brazil.

Mon, 08/04/2014 - 15:21 | 5045107 Berspankme
Berspankme's picture

Brilliant- 8 yr loan on a depreciating smoldering piece of shit. What could go wrong?

Mon, 08/04/2014 - 13:06 | 5044437 LetThemEatRand
LetThemEatRand's picture

The government investigating itself again?   Probably the fault of some low-level guy in financing.  He'll pay for this!

Mon, 08/04/2014 - 13:06 | 5044444 LawsofPhysics
LawsofPhysics's picture

Wait a minute, wasn't GM taken over by the government?!?!


I take it back folks, apparently they really are willing to indict themselves...



This is fucking rich, cue the John Stewart writing team, they will have a field day with this one.

Mon, 08/04/2014 - 13:18 | 5044500 Looney
Looney's picture

They are throwing a bone to frau Merkel and Hollande, "see, we are punishing our own too"


Mon, 08/04/2014 - 13:47 | 5044659 mr1963
mr1963's picture

Talk about a pump and dump. If I remember right, the goobermunt sold the majority of their shares BEFORE all this crap started. Think they didn't see this coming as well as the recalls prior to the sale? Now that's an investigation...

Mon, 08/04/2014 - 13:54 | 5044701 LawsofPhysics
LawsofPhysics's picture

yes, they sold at a loss in fact.

Mon, 08/04/2014 - 14:55 | 5045005 Its_the_economy...
Its_the_economy_stupid's picture

Time for a claw-back of monies form prior government stock sales of GM (after all, they all knew this was coming, right?)

Mon, 08/04/2014 - 13:07 | 5044445 Save_America1st
Save_America1st's picture

Oh, they deserve a huge fine of at least $650,000 bucks for that!



JP Morgan

Mon, 08/04/2014 - 13:09 | 5044446 NoDebt
NoDebt's picture

And all this is somehow easier than just letting that shithole company go bust in '09?

By the way, that's a Ford Escape on the back of that flatbed in the bottom picture.  Just to be fair.  I wouldn't want to unnecessarily pile onto such a fine, upstanding company as Gov't Motors.

Mon, 08/04/2014 - 13:08 | 5044450 Number 156
Number 156's picture

Its called a shakedown.
GM just needs to pony up some campaign contributions.

Mon, 08/04/2014 - 13:10 | 5044458 LawsofPhysics
LawsofPhysics's picture

Someone is confused then.  GM doesn't print money, the Fed does.

Are you suggesting that this is simply one big misunderstanding?

Mon, 08/04/2014 - 13:40 | 5044537 Number 156
Number 156's picture

Wait till they discover that GM has been hiding a negative margin.

Idiots plain and simple.

Or, this is some lame attempt at a backdoor money funneling scheme?

Mon, 08/04/2014 - 13:42 | 5044620 froze25
froze25's picture

Are you suggestioning that they are selling cars at below cost to make it up on the finianing?

Mon, 08/04/2014 - 13:08 | 5044451 fuu
fuu's picture


Mon, 08/04/2014 - 13:09 | 5044455 IANAE
IANAE's picture

GM Financial was not owned by GM back in '07 instead was known as AmeriCredit, a sub-prime auto finance company, subsequently bought by GM to replace its former captive finance arm GMAC (now Ally).


Not clear to me that the focus is GM if Justice is going back to 2007.



Mon, 08/04/2014 - 13:11 | 5044456 astoriajoe
astoriajoe's picture

Eat your heart out Ackman.



Mon, 08/04/2014 - 13:16 | 5044467 Dr. Engali
Dr. Engali's picture

Bail them out, screw the bond holders and pensions in the process, then turn around and bankrupt them so we can bail them out again. Your great great great great grandchildren's tax dollars at work.

Mon, 08/04/2014 - 13:16 | 5044494 LawsofPhysics
LawsofPhysics's picture

The average 'merican is going to have that many prodigy?  You sir, are a true optimist.

Mon, 08/04/2014 - 13:21 | 5044512 Dr. Engali
Dr. Engali's picture

As an "exceptional" American, optimism can not be helped. It's a divine gift.

Mon, 08/04/2014 - 13:34 | 5044579 knukles
knukles's picture

YES ++++++++++++++++++++++++++++++++++++

Mon, 08/04/2014 - 13:56 | 5044706 LawsofPhysics
LawsofPhysics's picture

We, the relatively few that survive, always are.

Same as it ever was...

Mon, 08/04/2014 - 13:19 | 5044477 Chupacabra-322
Chupacabra-322's picture

Here's a Novel Idea. Let The American People Subpoena the DOJ.

Mon, 08/04/2014 - 13:13 | 5044478 Seasmoke
Seasmoke's picture

What you mean the Unions don't know how to run a company ??

Mon, 08/04/2014 - 13:33 | 5044482 Save_America1st
Save_America1st's picture

okay...I know how obama and Holder will fix this.

In lieu of any fines, obama will give every illegal invader a "credit" of $15,000 dollars towards the purchase of any GM car, straight up.  That way GM won't have to write shit loans anymore, channel stuffing will disappear, and of course GDP will sky-rocket, right Folks??? 


*This offer also valid towards all illegal invader's children (regardless of age), children's children, aunts, uncles, cousins, nieces, nephews, grandchildren of any other relatives, and all peoples in Mexico, Guatemala, Uraguay, El Salvador, Costa Rica, Venezuela, Columbia, the Bahamas.....Ahhh, fuck it!!!  Free cars for everybody who isn't an American citizen, bitchez!!!!!

C'mon down (or "up") to obama's Crazy Town Auto where if you have a pulse, no job (and never will have a job), an EBT card, collect Social Security Disability (even though you're a illegal invader), can't speak the English language and aren't a true American citizen then you're fucking QUALIFIIIIIIIEEEEEED!!!!

We'll also throw in a free driver's license, insurance, obamacare, an RFID tracking chip, and we'll register you to vote for our gang, the Demopublicants, all at the same fucking tiiiiiiiime!!!!

*****paid for by the American tax payers and the generations of citizens (slaves) who are yet to be born into this cruel, fucked up, degenerate, police state. (and hey, don't worry about them...they're justa buncha white RAAAAAYYYYCISTS anyways) ;-)


Mon, 08/04/2014 - 13:14 | 5044483 Aussiekiwi
Aussiekiwi's picture

Investing in a new car shoud be everyones right irrespective of whether you currently have a job or any sort of credit rating, as soon as that hockey stick recovery kicks in you will need a new car to get to that high paying job.......Just being Hopey.

Mon, 08/04/2014 - 13:16 | 5044491 SmittyinLA
SmittyinLA's picture

Baloney, GM is the Obama administration, this is like Barry jacking off with his right hand instead of left  

Mon, 08/04/2014 - 13:17 | 5044497 WTFUD
WTFUD's picture


Mon, 08/04/2014 - 13:19 | 5044504 moneybots
moneybots's picture

"Banks continue to hold a sizable market share of outstanding loans of $250 billion, or 31 percent of the total auto lending market."


How many banks are expected to go under in this round of "It's confined to sub prime"?



Mon, 08/04/2014 - 13:27 | 5044546 NotApplicable
NotApplicable's picture

All the ones who weren't smart enough to securitize this shit. Honestly, I figured that they all had by now.

Oh well, back to increasing the channel-stuffing conduits.

We're gonna need a bigger black-hole.

Mon, 08/04/2014 - 17:46 | 5046043 notadouche
notadouche's picture

I think the first bank get identified is fairly easy.  It is a bank called Ally.  It's the lending arm of GMC.  The name changed from GMAC during the whole financial debacle so as not to look associated with GM.  It was a nice quiet way for GM to be able to double dip from TARP/bank bailouts and then special automaker bailout that no one seems to discuss.  

Obama probably assumed that it would be enough to kick the GM can down the road long enough for him to be out of office.  Now that strategy seems to be failing so it's time to finger wag at the CEO and corporate.  Needs to walk a tightrope on this deal as on the one hand he has to be seen as punishing corporate while at the same time not hurting the unions.  He's proven to be as adept at tightrope walking as a Flying Walenda but those efforts have been helped greatly by a complicit media that is very selective in what they choose to investigate and report.

Mon, 08/04/2014 - 13:21 | 5044514 Chupacabra-322
Chupacabra-322's picture

The Game has been over sooooo long already its not even funny anymore. Especially to the Criminal NWO.

Mon, 08/04/2014 - 13:22 | 5044526 TalkToLind
TalkToLind's picture

No subpoenas needed, just print.  It won't cause inflation, Steve Liesman told me so on TV!

Mon, 08/04/2014 - 13:58 | 5044730 headhunt
headhunt's picture

That Stevie is so smart...

Mon, 08/04/2014 - 13:30 | 5044560 orangegeek
orangegeek's picture

GM is the curtain call

Mon, 08/04/2014 - 14:22 | 5044861 IANAE
IANAE's picture

again... will they get (yet another) encore?

Mon, 08/04/2014 - 13:35 | 5044587 notadouche
notadouche's picture

Lets see,  the Government decided to "save" GM and BofA.   A very controversial move that taxpayers were very bitter and dare I say pissed off about.   Once "the crisis" has passed and these companies are now presumably "breathing on their own", the same government decides to crawl up their ass and demand answers along with massive fines that could lead to their needing "life support" again.   How stupid can our government be?

I certainly don't believe this has anything to do with consumer protection.  This is so political, so transparent.  The Obama base, according to the polls are at the very least splintering with some being really pissed and while perhaps not turning their back on this administration are at least viewing with a jaundiced eye.  So the strategy decision was taken appeal to those folks,  to get the base back on board and at least engaged for the upcoming election is to use the SEC and DOJ as the punisher and slap big fines on the lowest hanging fruit available and just in time to tout their "get tough" policy on banks and corporate America.   Strap yourself in folks, we are about to get a steady dose of "hate the rich", "hate the evil corporation" etc...    

Don't forget, Obama just recently attacked these "rich corporations" for using legal maneuvers known as tax inversions" to reduce their tax obligations.   Now mind you "the FOLKS aren't doing anything illegal, it's just that its not PATRIOTIC".   Here's a novel idea,  if you didn't want companies or individuals  to use tactics to reduce expenses, including taxes, make a fucking law that makes that tactic illegal.  I've never seen a sitting president, one that has gone around Congress when it suits him to enact some regulation, point the finger at corporations, labeling them UNPATRIOTIC when they simply follow current tax law.  

Am I the only one views this as transparent maneuvers in order to secure votes and create a political narrative that incumbents do not currently have?  I didn't realize when Obama promised the most transparent White House the citizens had ever seen, THIS is what he was referring to.

The next 4 years, ones I won't likely see given my medical prognosis, are going to a bitch.  If so many good people weren't being negatively affected it would be comical, instead, its just fucking tragic. 


Mon, 08/04/2014 - 13:43 | 5044635 Bossman1967
Bossman1967's picture

nothing to see here just move along. all is ok Obama just gonna give them the cars.

Mon, 08/04/2014 - 13:56 | 5044703 Dr. Engali
Dr. Engali's picture

Great, we have Obamaphones, Obamacare, Obamahousing,Obamsnap, and soon to be Obamacars when the DOJ says the repo man can't take the cars awyay from the poor.

Mon, 08/04/2014 - 13:56 | 5044710 Duude
Duude's picture

While I don't agree with all the subprime auto loans (GM had 88% of their auto loans to people with a FICO score below 620), the federal government essentially GAVE their BLESSING on subprime auto loans when they purposely cut out an exemption on subprime lending for the auto lenders. Someone needs to sit  Eric Holder down and explain the administration's complicity.

Mon, 08/04/2014 - 14:22 | 5044856 Jack Sheet
Jack Sheet's picture

Department of Buford T. Justice.

Mon, 08/04/2014 - 14:28 | 5044892 Jack Sheet
Jack Sheet's picture

from Jim Sinclair over at



GDP up 4%?  That made me laugh-out-loud.  My number 3 son has an advanced degree in physics from the University of Syracuse and can’t find work. There are PhD’s that would be happy working as a photocopier repairman (or woman). My number 2 son (no college) got a job selling sub-prime auto loans about 3 months ago. He closed his 100th account (not individual buyers mind you, but dealerships) in less than 45 days. He gets a free trip to Las Vegas. My number 3 son lives with me, has 100K in student loans and will soon be off my health insurance…

GDP up 4%? Bull*%$#!!!

Thanks for all you do,
CIGA – Matt"

Mon, 08/04/2014 - 14:37 | 5044929 Dingleberry
Dingleberry's picture

Where these loans 0% too.....or just 8 or 9 year payoffs? Both?

This is what happens when you make money cheap:

you get cheap money.



Thanks Fed.

Mon, 08/04/2014 - 14:43 | 5044951 SillySalesmanQu...
SillySalesmanQuestion's picture

Let see if I have this straight, Generating Malfunctions is loaning Goverment Money, trying to Generate Margins, by selling Generally Mediocre vehicles, made by Godawful Moron union workers, who is owned by Goverment Manipulators, is being investigated and supeneoaed by General Monkeyface, Eric (Shitbag) Holder....What a clusterfuck!

Mon, 08/04/2014 - 15:22 | 5045112 starman
starman's picture

Hitlers Volkswagen Obamas Chevy! Recovery!. PS; If youre scratching your head about job numbers well look around your town and see how many road workers been added to this lovely economy.

Mon, 08/04/2014 - 15:35 | 5045180 vyeung
vyeung's picture

they won'do jack! DOJ is dysfunctional just like the rest of the government departments. Just wait till the banksters feel the pinch and the order will be put in to stop messing with the pot.

Mon, 08/04/2014 - 16:23 | 5045519 Manipuflation
Manipuflation's picture

Maybe the Dept of .gov Just Us should subpeona everyone who either proposed or voted for "Cash for Clunkers" load of bullshit.  Have you looked at the used car market lately?  If you have then what I am talking about and if not and need buy a car you won't be very happy on discovery of prices these days. 

I rolled into the Kia dealership because I saw they had some used Hyundai's there and I have had pretty good luck with mine.  A used 2012 Sonata with a 100k miles on it is 17 grand.  The sales douche, who was about half my age, told me that this was a competitive price.  Not only that there as so many bluetooth, 4G gizmos and gadgets in the thing and sales douche kept telling my about all of this crap while I am driving.  I am thinking more along the lines of does the car run and drive at all?  How is the tranmission?  Are the tires good?  Exhaust?  Sales douche had a blank stare.  I don't that wireless shit in the car because call me crazy, but it does not seem to be the right be surfing the net.  GPS is cool but beyond it has gotten out of control.  Those are not options to me. 

So I went and looked at Kia Optima but a brand new.  They want 40 fucking thousand dollars for one of those.  The sales douche told me that they have financing and starting asking me if I knew my credit score which I do know but wouldn't say because I told like five that I would be paying cash on the barrel head.  He didn't understand that concept either.  

So I went to Hyundai dealership figuring I should go look over there.  Of course a sales douche comes out which is fine because that is their job,  However, the same happened there as well, they were not selling you the car, they were selling financing options.  I asked what the cash would be for XYZ car.  Blank stare.  He didn't understand what I was saying so I had to explain that usually there is a cash discount.  Blank stare.  We looked at a few more cars and all he kept talking was the financing packages how I could save by financing.  I own already three cars with no notes against them so I am not in a hurry to buy a fourth.  

Alright to be fair here, I went to a GM dealership and the same thing happened again.  Basically, these sales douches are being trained to sell you financing and gizmos that you really do not need to get you into a more of a car then you need.  They don't understand all I really want is a car that runs well and drives up and down the road.  Apparently the car manufacturers do not understand this either.  I don't need or want a car with drone strike tracking that you have to give a thumbprint, social security number, password and a DNA sample just to get the damned thing to start.

I know the sales douches have to make a living but they need to understand what cash is too.  If I ask about engine specifications it might be a good idea to know some of the basics of what it is your selling.  It's not like I can't look that stuff up myself but should I have to?  I'm the sales guys doesn't know the cars but only knows the financing terms then isn't he just an agent of the banks?

On Friday, I drove past what appeared to be around 79 Ford Thunderbird for sale in a home owners yard.  The car looked pretty clean so I had to take a look at that guzzler.  Upon inspection the metal was clean and it looked like original interior and paint.  Brown paint.  Not a pretty paint job.  I am not a Ford guy but I was ready to name it the Brown Bomber and hand of $500 for it because I like making my wife mad.  That is when I looked at the asking price.  Someone had to be smoking some really good dope.  10 grand.  What? 

Well, that car will sit there for a long time but it is not like the old days when you could buy something decent for cheap.  You hardly see any American 80's era cars anymore and that is because they were junk and it does not matter what brand.  There isn't much from the early 90's either.  At least nothing I would want anyway.  Taxpayer bailout after bailout has resulted in shitty American cars.  I'm am NOT going have my tax dollars, or should I say my granchildren's tax dollars, should the dollar survive so long, subsidize the production of a bunch of junkmobiles that no one can reasonably afford.

Mon, 08/04/2014 - 17:46 | 5046031 Coletrane
Coletrane's picture

automakers should wake up and SLAM on the brakes........stop lending to any but the over 750 fico crowd.

lets obama watch his "legacy" blow away like a fart in a hurricane

and start laying off all those union laborers.......unemployment 11% ftw

Tue, 08/05/2014 - 07:06 | 5047934 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.

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