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What It Looks Like When The Second Auto Subprime Bubble Pops
A month ago, when we commented on the most recent surge in US manufacturing production, when it jumped by 0.7% offsetting a tumble in utilities and mining output and leading to a 0.4% jump in overall Industrial Production (since revised to only 0.2%), we observed that this was entirely due to the second, and more nuanced, coming of the cash for clunkers bubble, as the explosion in subprime loans pushed production of Motor Vehciles and Parts to the highest since 2009's disastrous CARS, aka Cash for Clunkers, program.
This is what the latest subprime bubble looked like a month ago when translated in terms of actual car manufacturing:
A month later, one can kiss the US subprime-driven "manufacturing renaissance" goodbye. The reason, as we reported moments ago, Industrial Production dropped 0.1%, driven by a -0.4% contraction in manufacturing, the worst print since the "harsh winter collapse" of January 2014.
The answer to the key question, what drove the tumble, is simple: what goes up has come down, in this case production of Motor Vehciles and Part, after posting its best number in 5 years, just posted... it worst monthly drop in five years, or since May 2009 to be precise.
As the chart below shows, following July's month's 9.3% surge in production of motor vehicles and parts, August has come and wiped out all the gains, with a 7.6% plunge, the bigest collapse since May 2009.
So has the second subprime auto debt bubble burst yet? One month may be too soon to make a formal determination, but now that the sentiment surveys have no choice but to follow the hard data in crashing next month, watch as suddenly sentiment goes from euphoria to depression as Americans appear to have gotten their fill of subprime-funded clunkers.
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Are people still accepting my paper? This is the only thing that matters as the "uncoupling" continues...
think of "red lines" and SDRs...
Got a 30 year loan on my new Ferrari.....only plan on driving it every other Sunday.
Here's a great tune to go with it:
http://www.youtube.com/watch?v=gp1F0AjFoqE
I'll start to worry after the tenth auto subprime bubble starts to pop.....
Up 9.3% = 1.093
Down 7.6% = 1.093 x .924 = 1.0099
So, basically, up 1% net net. Not the roughly 2% that you might intuitively think it is, just subtracing one percentage from the other. I love month-over-month math.
I actually know a little bit about the subprime auto market. I certainly don't see a bubble, and I think the tyler articles fanning the flames are a little alarmist (which leads me to wonder if the other articles I read on ZH, that i generally completely agree with, are also overblown?).
First, tylers, do you have that chart going back to 2003? Might be a more interesting picture.
What is more interesting to me is why, all of the sudden, the NY Times starts running articles bashing evil auto abs investors and prederatory lenders. I think DOJ/SEC are going on a witch hunt, doing some prep-work for a scape goat for when TSHTF.
Time to go out and lease a new Ghibli. I drive past this interstate sign everyday.
$6,000 down
$699/month - 36months
12,000 miles a year
"You Deserve It"
...if you sign up for that deal then, yes, you deserve it.
If just one mini skirted bleach blonde takes him up on the ride offer, it's worth it.
Dweeb has a better shot with a Ghibli than a Prius.
mini skirted bleach blonde...
While he's fucking her, she is busy fucking
the rest of his bank account.
Buy car... no money down... change locks... hide in garage... stop making payment... do donuts on my neighbor's lawn... free car
New F-250 6.7L $65,000+. Insane.
No No No! You're not looking at it "correctly"! It's not 65000$, it's 469.52$ / mo after 3500$ down.
Whaaaa-Laaaa! See, HUGELY cheap and affordable!!!
Dr Strangemember
That explains why I consistantly observe no expense too great F 550 dualies that were bought for communting back and forth to work. But I have to ask, 469.52$/mo for how many decades? Not to mention they are generally driven as if they come with free fuel.
All you have to know is it's 469.52$/mo. All that other stuff doesn't matter... and yes, a 550 w/ dualies makes an excellent commuter vehicle, especially in an urban setting!
Oh, and by the way, my realtor just told me that TODAY was the BEST DAY to buy real estate!!!
Just keeps getting better. Ain't America great!!!!!
$469/mo?
Not if you actually use it as a truck.
One little scratch and you're screwed
at the end of the lease.
Yes, but what about debt production??
How we lookin on debt production?
Ass how ya fix them productions...
"debt does not matter".... load up bitches...
good luck with that.
You wouldn't believe the arrogance of dealers. Once the next crash hits within 24 months time, dealers will get their backs broken.
My experience is even in wheelchairs, they are still arrogant.
It is inherent in the species.
I wonder if the banks rehypothecated those vehicles ten times like they did
Notes on house loans.
Can't see why not,its not like they were punished for it last time.
Funny thing, industry logic is (and has been argued as far as in Congressional hearings, I believe...) that auto loans and auto ABS are better paper because 'folks' will make their car payment even as they walk away from their mortgage.
From what I recall, historical data (perhaps supported by Cash For Clunkers) has supported this anecdotal assertion...so far.
From ZH 8/20/14: "In fact, the auto loan subprime bubble may be the latest to burst (after student loans) as the rate of car repossessions jumped 70.2 percent in the second quarter, with much of that increase coming from finance companies not run by automakers, banks or credit unions. "
yes, especially with the explicit promise that the taxpayers will bail them out...
Actually the DOJ is looking into GM packaging and selling subprime rated as AAA.
Nothing will come of it but the headline sounded good.
Funny thing about subprime car loans vs subprime mortgages. Cars depreciate to almost zero in a few years while home could in theory actually appreciate because its an almost unlimited time frame.
70% consumer economy drifting down to 40%. Free money is neccessary toslow the decent.
So ZeroHedge is now using "Fox News" articles as references to the "truth" of what's going on.
Better than CNN or CNBC. Just sayin'
Fox is the outlet - Texas A&M study, via the National Bureau of Economic Research:
http://www.nber.org/papers/w20349
Sometimes a cigar is just a cigar.
Yes, sometimes a cigar IS just a cigar.
Obviously Texas A&M and NBER are racist
Subprime loans to deadbeats are great investment, as evidenced by the subprime housing boom that produced great riches for everyone involved
Typical of the low IQ type to attack the messenger when they don't like the message.
Fox is lying. The subprime zero down, 0%, 96 month loans to deadbeats market is doing fine. What could go wrong?
Here comes the Reliable Transportation for All Act of 2014. It's only fair everyone has a good, reliable (brand new) car to get to work in (or go shopping in). It's only fair that someone else pay for it.
"Reliable Transportation for All Act of 2014"
Everyone will buy a new auto or pay the IRS a penalty. "It's a tax you know."
An American, not US subject.
Note: Regarding Obamacare being a tax, or not. The Constitution forbids non-apportioned direct taxes, Article 1, Section 2, Clause 3, except income taxes as per the 16th. The 9th. and 10th. amendments provide that if a power isn't granted to the Federal government, then that power is left with the states or people and also that the people have more rights than those enumerated in the Constitution.
Being that Obamacare is not income and not a power provided to the Federal government by the Constitution, it is Unconstitutional and null and void.
Note on the Note: The 9th. and 10th. also apply to firearms.
blah, blah, blah "article this", "section that". I'm sure you'll come up with all kinds of legal arguments to prevent me from getting my god-given right, a 2014 Cadallic Escalade paid for by someone else.
"The constituion tells us what government cannot do, I am here to tell you what it can do." Obama
\s
I'll tell you what government can do...it can go fuck itself.
I would love to have a New z06 vette too bad it's little brother has already been recalled, might as well take out a 7 year loan like the rest of the FSA does.
What we need here are some of those new fangled, Euro style negative interest loans!
/s
Yes, please pay me and my business to spend another 100 million.
Sign me up!!!
(unfortunately, printing trillions in order to pay a select few "club member" to spend is NOT a solid foundation for a monetary system...)
Much of the economic landscape is beginning to look like something out of "Alice And The Looking Glass" A bizarre and unrecognizable land, a land that is distorted and papered over by ream after ream of paper. This paper has been rolling off the printing presses of central banks all across the world in an attempt to mask reality.
Peter Schiff says, printing money is to the economy what taking drugs is to a drug addict. In the short term it makes the economy feel good, but in the long run it is much worse off. What was once the "long run" or "distant future" may be getting much closer. More on what happens when the momentum ends in the article below.
http://brucewilds.blogspot.com/2013/01/what-happens-after-momentum-ends_...
The problem is with respect "damand".
Demand for what? Useless plastic shit from China? Who fucking cares?
The fact is that is takes a lot of calories (energy), certain commodities as well as certain resources to maintain a high standard of living.
There are 7+ billion people (and growing) on this rock all competing for that high standard of living, so there is plenty of demand for real goods and services.
Demand for financial "products" of mass destruction? not so much...
Absolutely correct, however it is not the "printing" that is the problem, but the theft that the "printing" enables.
"'Printing' is theft."
An American, not US subject.
"A guillotine resembles a printing press of old. Ironic or fate?"
Something seems wrong with the data; up 9.3% then down 7.6% in two months?
Did everyone go on vacation and production lines were halted?
Big picture: bullish for auto parts, not so much for new autos.
Could this drop be the August retooling shut down of factories? The Big 3 would have cranked up production in July to build supply for factory shut down. Just wondering since I know Big 3 do not shut down factories for nearly as long as they used to in Summer.
Looks like the patient is dead, but they keep bringing him back with a defibrillator and an adrenaline shot to the heart.
An American, not US subject.
"Damn it Jim, I'm a doctor not a auto salesman."
Autoworkers got a lot of overtime in one month to pay for their vacations the next month.
i bought my last car for $2700 and am still driving it
You're a terrorist. You must immediately go to your local BMW Centre and purchase an M6 with all the fixin's, and take out a 10-year auto loan, to pay for it.
I worked for the auto companies all my life. It was your government who was the “terrorist”! If they could have shut up the government I would now be buying a 2014 Pontiac GTO with a 389 cu in (6.4-liter) V8 engine with an optional “Tri-Power” carburetion that produced an increased output of 348 horsepower…
My '65 GTO had the straight Holley carb but what a motor! Gobs of torque, so much torque it only needed two gears for the powerglide transmission. What a cruiser, and what a couch of a back seat (ah..the memories). And vent windows, and an engine compartment you could crawl into - no spaghetti wires - no plastic - and it had chrome!
Peeled open the side of a brand new Camry from stem to stern when I went left into a left hand turn lane into this Lady that was in a hurry - hit her with the front left bumper - all the way back to the rear quarter panel. Her Camry was mangled, I brushed the paint and undercoat off the chrome of my bumper and it was undamaged.
I am still driving my 2000 Honda CRV going on 200K miles and my “beater” 1993 Ford F-150 straight six. I love them. They don’t beep, talk back, flash screens at me or have too many buttons. So why switch…
Wow, so greedy and self-centered. You must be one of those Americans that is "hoarding cash" that the Fed has warned us about. Do you not care about the factory worker in detroit, errr, somewhere? Do you not care about America? Get out there patriot and spend. The economy is counting on you. Now is not the time to be all self-centered. Think of someone else please. /s
They will replace him and his kind with 50 million new Americans from south of the border
I feel fortunate that I am able to maintain my 20+ year old daily-driver work truck myself. I drive it 20K+ miles a year with zero problems or breakdowns. I spend less than $1,000 a year on it including tags and insurance.
Money not spent doesn't have to be earned, and causes no economic activity that can be taxed or consfiscated.
Starve the Beast.
I rely on personal observation rather anyone's ginned up statistics.
And based on what I see of 20 somethings driving around in new Murikan Big 2 produced POS with dealer tags still on them and the folks driving them you know these were no money down push sales. And there are a whole shit load of them on the roads around Seattle.
They will have as much luck getting the kneegrows to pay for those as they did with sub prime housing liar loans, or student 'loans', or (fill in the blank) .gov sponsored 'loans'.
From one of the source articles:
So Cash for Clunkers is somehow deemed a failure because Americans chose more wisely than they should have? Isn't that a logical fallacy?
C4C was a great option for our family; we traded in a "last legs" Expedition for a highly-luxurious Chrysler vehicle which my dear wife cherishes to this day. If anything, C4C was a failure because not enough Americans took advantage of it!
Typical,, the only thing you can see is that your wife is happy with her piece of junk, and no doubt you are happy with your sub prime loan, and maybe you will even have it paid off in a few years.
But you so fucking blind to the overall reality.
It is fucking retarded dumb fuck wankers ploy to try to fix things that involves massive mis-allocation of capital and loads risk and debt on to taxpayers at large.
I can respect your viewpoint.
Would it have been more retarded or less retarded to have missed out on the deal at all? You see, I leveraged a situation to get $2,300 more in trade than I ever could, for a car that was about to die.
I bought a clunker and kept my cash
I'm so unamerican, I own a 42 year old pickup, a 33 year old motorcycle and a 20 year old car....I'm sooo ashamed....