Subprime Car Loans Are The New "Cash For Clunkers" - Auto Production Soars Most Since July 2009

Tyler Durden's picture

The subprime auto-lending credit bubble, whose reappearance has been duly noted here in previous articles, which even the mainstream media is now following closely (with Bloomberg recently observing a "sudden jump in late payments"), which last week saw the a DOJ appearance after the justice department subpoeaned GM over subprime auto loans, and which even the NY Fed is keeping a close eye on with yesterday's "Looking under the Hood of the Subprime Auto Lending Market", is not all bad. In fact, as the Fed reported moments ago, the latest manifestation of a subprime bubble is actually quite good, because of the 0.4% increase in Industrial Production in July, and 1.0% surge in Manufacutring in July, the vast majority of that was due to Auto Production.

To wit, from the just released Industrial Production report:

  • The production of motor vehicles and parts jumped 10.1 percent, while output in the rest of the manufacturing sector rose 0.4 percent.

The punchline:

  • In July, the gain in durables was led by an increase of 10.1 percent in the index for motor vehicles and parts, which was the largest since the index jumped 26.9 percent in July 2009.

As a reminder, July 2009 is the month when Obama's disastrous CARS program, aka "Cash for Clunkers" went into effect.

In other words, when it comes to the US economy, subrpime is the new "cash for clunkers" as can be seen on the chart below.

Wait, really?

Yes. Here is the chart from the NY Fed showing the surge in subprime loans issued by auto finance companies, if not banks and credit unions which this time around appear to have some sense in their heads.

Auto_Loan_Origination

Quote the NY Fed:

So, subprime auto lending is definitely on the rise in absolute terms, although the increase in prime auto lending over the same period makes the relative increase in the subprime share less pronounced. This resurgence in subprime loans is stronger among auto finance loans, where subprime lending is—and always has been—more prevalent than bank loans. We will continue to monitor this ongoing change in the consumer lending market.

Monitor yes, do anything about it? No. Because without the manufacturing "benefit" of this latest subprime bubble, the US economy would be far weaker than it is already.

As to the logical question of just how far is economic growth sustainable on the backs of subprime borrowers... well, just look at what happened in 2008.