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Even Mark Zandi Admits It: Auto Loan "Credit Quality Is Eroding Now, And Pretty Quickly"

Tyler Durden's picture




 

Just 2 days after President Obama reflected on his glorious 'save' of the US auto industry - forgetting to explain how so much of this 'buying frenzy' has been predicated on massive low-quality-borrower-based credit extensions - The Wall Street Journal bursts the bubble of 'contained-ness'. Auto loan delinquency rates are surging to levels not seen since 2008 and stunningly, more than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November. As even glass-half-full-status-quo-hugger Mark Zandi is forced to admit, "It’s clear that credit quality is eroding now, and pretty quickly."

 

 

As The Wall Street Journal reports,

Borrowers who took out auto loans over the past year are missing payments at the highest level since the recession, fueling concerns among regulators, analysts and some in the car industry that practices that helped boost 2014 light-vehicle sales to a near-decade high could backfire.

 

“It’s clear that credit quality is eroding now, and pretty quickly,” said Mark Zandi, chief economist at Moody’s Analytics.

 

More than 2.6% of car-loan borrowers who took out loans in the first quarter of last year had missed at least one monthly payment by November, the highest level of early loan trouble since 2008, when such delinquencies rose above 3%, according to an analysis of data performed for The Wall Street Journal by Moody’s Analytics.

 

The uptick comes amid an increase in subprime auto loans, raising concerns that car buyers may have taken on more debt than they can handle. For that set of borrowers, defined as consumers with a credit score lower than 620, loan performance also is deteriorating.

 

More than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.

 

...

 

Of the 15 biggest U.S. auto-lending banks, Santander had the largest percentage of delinquent auto loans in the third quarter, according to SNL Financial. Santander’s delinquency rate of 16.7% was followed by Capital One at 6.6%, according to SNL.

 

Of particular concern are loans in which car dealers push financing at extended terms of six and seven years at relatively high interest rates, even if the borrowers have weak credit and escalated debt-to-income ratios. The longer loan terms keep monthly payments under control and get buyers to purchase more expensive cars.

This does not bode well for this year...

Low-interest rates and wider credit availability have helped propel the U.S. auto industry’s comeback from the recession, driving new-car sales to 16.5 million last year, the highest level since 2006, according to market researcher Autodata Corp.

 

To keep the momentum going in 2015, industry analysts said car companies and lenders will likely have to push more aggressive finance deals and tap borrowers with weaker credit. Riskier lending tactics already are drawing regulatory scrutiny.

 

Kevin Duignan, global head of securitization for Fitch Ratings, said some bigger lenders are starting to pull back and be more conservative on subprime auto lending. The credit-rating firm is concerned that small and midsize lenders won’t follow suit and dive too deeply into subprime lending.

 

“Subprime delinquencies and losses are beginning to grow at a more rapid pace than we’ve seen in a long time,” he said.

But we leave it up to Honda's head of sales to sum it all up...

“The industry is starting to do some stupid things,” said John Mendel.

*  *  *

Who could have seen this coming?!!

 

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Fri, 01/09/2015 - 11:16 | 5641590 Bastiat
Bastiat's picture

HOPE loans!!

Fri, 01/09/2015 - 11:21 | 5641613 outamyeffinway
outamyeffinway's picture

You'd think the lower gas prices would help them make their payments....? Guess not.

Fri, 01/09/2015 - 11:32 | 5641666 zuuma
zuuma's picture

Radio ads running heavily around here with peeps bragging that their 510 credit score scored them a new camaro at 11% (probably for 84 months)

Recovery summer 2015?

Fri, 01/09/2015 - 11:44 | 5641724 FreeShitter
FreeShitter's picture

Now they have two problems.....shitty score and a slow and SHITTY camaro.

Fri, 01/09/2015 - 11:49 | 5641767 OV61FVF
OV61FVF's picture

Why buy the car you can afford when you can buy the car you can't afford.

Fri, 01/09/2015 - 12:06 | 5641867 PT
PT's picture

Shouldn't this mean cheap, second-hand repos for sale?  What happens to them?  Where do they go?

Sold over-priced back to the car yards I guess, who then on-sell them, over-priced, to idiots again.  Damn!  You really can't compete against idiots and their free money.

Fri, 01/09/2015 - 12:58 | 5642201 Osmium
Osmium's picture

Plus when someone knows their vehicle will be repo'd, they treat it worse than a rental car.

Might not want to buy a repo unless you can get a REALLY good deal.

Fri, 01/09/2015 - 13:56 | 5642477 Bunga Bunga
Bunga Bunga's picture

In Soviet America loan pays you!

Fri, 01/09/2015 - 16:18 | 5643220 TruthInSunshine
TruthInSunshine's picture

1991, 1999, 2007, 2015.

BUBBLES ECONOMIC CYCLE.

"To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Paul Krugman, 2002, in wake of v1.0 dot.com bust

http://mises.org/library/krugmans-call-housing-bubble

Sat, 01/10/2015 - 10:07 | 5645409 TinF0ilHat
TinF0ilHat's picture

Im waiting for the helicopter money. Or Fed debt jubilee. Which ever is fine with me.

Fri, 01/09/2015 - 14:13 | 5642543 silentsock
silentsock's picture

You can be SURE that oil isn't getting changed, ect. lol

....And if a lack of oil changes/maintenance is ALL that's wrong with a repo, you're probably lucky. Actually, I don't believe I would even buy a used car unless I personally know the owner, or I can look at a verifiable history on the vehicle. 

There's no way in HELL I'd buy a car that has been in an auction. (that's where repos and wrecked/totaled cars usually end up)

Fri, 01/09/2015 - 11:23 | 5641615 El Oregonian
El Oregonian's picture

Long bicycles!

Fri, 01/09/2015 - 11:30 | 5641650 Poundsand
Poundsand's picture

Think that's bad.  Had a business failure in 2012 (construction) and it took me about 6 months to get on my feet, missed mortgage payments and started working with my lender to save my house.  Two years later, they agreed to waive all back charges, refinance at a lower rate, and not wrap the old payments onto the back of the loan.  Basically got a two year payment hiatus, with no penalty what so ever, and got refinanced at a lower rate.

They were that desperate.  Think I might wait a year or two and do it again if things remain the same.

By the way, sent them payments that they rejected during the year and a half interim and simply put the money into other things.  Unfortunately I lost it all anyway in a boating accident.  Damn.

Fri, 01/09/2015 - 12:59 | 5642209 Osmium
Osmium's picture

Glad you made it back on your feet.

Fri, 01/09/2015 - 11:40 | 5641716 post turtle saver
post turtle saver's picture

no one cares, the sales team has incentive commissions, if you can fog a mirror and put an 'X' on the line that is dotted you're approved... who cares what happens tomorrow, this quarter is all that matters, "I got mine"...

Fri, 01/09/2015 - 13:00 | 5642219 SeattleBruce
SeattleBruce's picture

"HOPE loans!!"

oBAM!a - Hope and (tire) change. 

Fri, 01/09/2015 - 13:22 | 5642326 KnuckleDragger-X
KnuckleDragger-X's picture

Tsk, people are working three part-time low wage jobs and still can't make their payment. Must be time to start the 10 year car loan program....

Fri, 01/09/2015 - 11:18 | 5641591 kowalli
kowalli's picture

new normal

Fri, 01/09/2015 - 11:16 | 5641592 Dr. Richard Head
Dr. Richard Head's picture

Well, at least those car loan defaults can be masked by some free community college truition.  

Fri, 01/09/2015 - 11:19 | 5641596 NoDebt
NoDebt's picture

Owning a new car is a basic human right.  Along with a college education.

Fri, 01/09/2015 - 11:22 | 5641618 outamyeffinway
outamyeffinway's picture

Don't forget home ownership. And cruises. And Coach purses.

Fri, 01/09/2015 - 11:26 | 5641630 NoDebt
NoDebt's picture

I was trying to be brief.  But you're right, all of those things are basic human rights as well.

Fri, 01/09/2015 - 11:27 | 5641641 jamochavez
jamochavez's picture

why dont they propose something free for everyone each week--I mean everyone wins

Fri, 01/09/2015 - 11:32 | 5641657 NoDebt
NoDebt's picture

Wish granted.  (You now have two wishes left.)

Fri, 01/09/2015 - 12:31 | 5642008 Winston Churchill
Winston Churchill's picture

Twelve inch pianist jokes follow.

Fri, 01/09/2015 - 11:35 | 5641681 Poundsand
Poundsand's picture

Imagine the good press from the masses if Obama started a national debt free lottery.  Big production, and if your number is called, all your debts are paid for by the Fed. 

Say 500 winners a month.  At $200k in overall debt on average that's only $100m per month.  Chump change for this administration.  Imagine the stampede to get registered...

Fri, 01/09/2015 - 12:10 | 5641838 forwardho
forwardho's picture

I read that book.

Strange as it may seem...

No one ever sees those "folks" that won again.

Fri, 01/09/2015 - 11:36 | 5641685 Dead Canary
Dead Canary's picture

And free pot for the homeless.

Fri, 01/09/2015 - 12:02 | 5641849 Government need...
Government needs you to pay taxes's picture

Dont forget the teeth sealing provided by NY state medicaid.

Fri, 01/09/2015 - 12:29 | 5641995 MarkGoldman
MarkGoldman's picture

Free pot for me...I'll be homeless soon enough anyways.

Fri, 01/09/2015 - 11:25 | 5641626 jamochavez
jamochavez's picture

for sure--and what kinda person would not support free college for a couple years-- these people are some of the greatest hucksters in history

Fri, 01/09/2015 - 11:26 | 5641628 Callz d Ballz
Callz d Ballz's picture

and phone, and food, and healthcare, and mortgage, and...oh hell

Fri, 01/09/2015 - 11:26 | 5641635 El Oregonian
El Oregonian's picture

I upvoted you even though you forgot the "sarc" sign...

Because anything more obvious would be ludicrous...

Fri, 01/09/2015 - 11:33 | 5641670 NotApplicable
NotApplicable's picture

I read everything here in a sarcastic tone. Cheap entertainment with minimal stress.

Fri, 01/09/2015 - 11:27 | 5641636 codecode
codecode's picture

where's my free car?

Fri, 01/09/2015 - 11:36 | 5641687 B2u
B2u's picture

i's gots' its....gonna gits laid soon...

Fri, 01/09/2015 - 11:21 | 5641601 Seasmoke
Seasmoke's picture

Walk out with keys. People know whats up. Moral hazard !!!!!

Fri, 01/09/2015 - 11:20 | 5641602 Callz d Ballz
Callz d Ballz's picture

You too can drive a vet for 2 months.

Fri, 01/09/2015 - 11:30 | 5641652 JRobby
JRobby's picture

Corvette!

When Viagra and Cialis stacking does not even work anymore.

 

Fri, 01/09/2015 - 11:35 | 5641689 NotApplicable
NotApplicable's picture

Feels strange driving through the hood in my old rusty, beat up 92 Dodge Ram, when they're all driving new SUVs/tricked out cars. At least they know I ain't got no bling to jack.

Fri, 01/09/2015 - 11:38 | 5641695 Bangin7GramRocks
Bangin7GramRocks's picture

81' Chevette!

Fri, 01/09/2015 - 11:22 | 5641610 vote_libertaria...
vote_libertarian_party's picture

Just add the word 'freedom' to spin it patriotic positive.

 

Freedom Loans!!!

Fri, 01/09/2015 - 11:21 | 5641614 earnyermoney
earnyermoney's picture

Anecdotal evidence but I'm starting to see abandonded vehicles on the sides of roads, and the giant repo lot in Greensboro, NC was fuller the last time I drove past.

Fri, 01/09/2015 - 14:00 | 5642490 silentsock
silentsock's picture

I believe I know the lot you're talking about.

Literally thousands of cars, about as far as the eye can see. I always wondered exactly what that was. I don't live in the area, but I've seen it a few times. There was indeed a noticeable increase in their 'inventory', which is really saying something. If anyone has seen the size of this place, you'd know what I mean. lol

Fri, 01/09/2015 - 14:15 | 5642561 tarabel
tarabel's picture

 

 

I judge the local economy on the basis of the number of "toys" I see for sale on high traffic corners and out in the front yards.

Fri, 01/09/2015 - 11:22 | 5641617 Dr. Engali
Dr. Engali's picture

I bought me a brand new $80,000 BMW to park in front of my $10,000 trailer. I love this country.

Fri, 01/09/2015 - 11:34 | 5641668 NoDebt
NoDebt's picture

Yee haw.  Sure beats trying to pick up WalMart chicks in the General Lee with the doors welded shut.  Can't fit 'em through the windows.

Fri, 01/09/2015 - 11:34 | 5641680 B2u
B2u's picture

jist cut off's  the  tops to mak's em fits...

Fri, 01/09/2015 - 11:59 | 5641816 forwardho
forwardho's picture

The fat chicks?

or the car?

Fri, 01/09/2015 - 11:37 | 5641696 NotApplicable
NotApplicable's picture

You've just burned out my mind's eye with that imagery. Those were big fuckin' windows!

Fri, 01/09/2015 - 14:12 | 5642553 tarabel
tarabel's picture

 

 

Them old Dodges had big, big trunks.

Fri, 01/09/2015 - 11:34 | 5641672 B2u
B2u's picture

kin i's borrow's your wheils fors' a road trip?

Fri, 01/09/2015 - 11:25 | 5641629 buzzsaw99
buzzsaw99's picture

2.62% seems very low to me

Fri, 01/09/2015 - 11:32 | 5641667 Smegley Wanxalot
Smegley Wanxalot's picture

That's just the deliquency percentage "8 months after the loan was made."

Add in the percentage 6 months after the loan was made, 7 months after the loan was made, 9 months after the loan was made, 10 months after the loan was made, 11 months after the loan was made, and therafter, and you are at a more accurate 25%.

Fri, 01/09/2015 - 11:38 | 5641639 JRobby
JRobby's picture

Mr Pillskull emerged from the underpass into the glorious sunny blue sky day and proclaimed:

"I want a new fucking car!"

Like a flash, dealer demos were screeching to a halt! Young men dressed sharply in Men's Warehouse suits rushed him to get him into their demos and on the way to the dealership.

Fri, 01/09/2015 - 11:29 | 5641646 WTFUD
WTFUD's picture

That didn't last LONG!

Fri, 01/09/2015 - 11:30 | 5641651 Smegley Wanxalot
Smegley Wanxalot's picture

Why should the poor quality of the car loans exceed the poor quailty of the cars themselves.

Fri, 01/09/2015 - 11:33 | 5641662 B2u
B2u's picture

I's  neid a title loan so I kin gits mony fo hookers and  blow...

Fri, 01/09/2015 - 11:44 | 5641725 JRobby
JRobby's picture

Step right over here young man! What you need is a government grant!

My associates and I specialize in securing grants for talented individuals like yourself.........................

Fri, 01/09/2015 - 11:32 | 5641664 brown_hornet
brown_hornet's picture

Mrs. Hornet works for Toyota Financial. They do very little sub-prime. Only for their most loyal dealers. Most people they refuse go to Cap One. What's in your balance sheet?

Fri, 01/09/2015 - 11:44 | 5641731 JRobby
JRobby's picture

Understated reserves

Fri, 01/09/2015 - 11:55 | 5641799 forwardho
forwardho's picture

Massive unfunded liabilities.

Fri, 01/09/2015 - 11:37 | 5641688 unplugged
unplugged's picture

what?  you mean waiters and bartenders and yard maintenance workers can't make their car payments?  well they need to get with the program, acquire some, you know, assets, and get with it

Fri, 01/09/2015 - 11:37 | 5641701 unplugged
unplugged's picture

why not just take out a student loan to buy a car?  c'mon!  lever-up all you bartenders and be a real American

Fri, 01/09/2015 - 11:38 | 5641707 Bell's 2 hearted
Bell's 2 hearted's picture

one of my favorite canaries

 

frankly, i signed up to ZH back around labor day because of this ... knew it was the beginning of the end (for this economic 'recovery')

 

FDIC & OCC have warned for months on rising delinquencies ... and OCC mentionned that the real danger lurks OUTSIDE the (regulated) banking sector 

 

hoo/how will bail out the shadow banks??

Fri, 01/09/2015 - 11:46 | 5641736 post turtle saver
post turtle saver's picture

the problem with NINJAs is no one sees them coming until it's too late... seems to be the pattern

Fri, 01/09/2015 - 11:39 | 5641710 q99x2
q99x2's picture

I need a liar's loan to buy a house but I'd like to know how long it is taking banks to foreclose before I'll sign.

Fri, 01/09/2015 - 11:47 | 5641740 Bell's 2 hearted
Bell's 2 hearted's picture

Don't stop there in your negotiations!

 

i kid you not ... but a few years ago some lenders would pay folks who quit paying the mortgage a few grand to leave quietly (ie: don't steal the appliances, rip out the copper pipes ... or pour cement down the toilet)

Fri, 01/09/2015 - 14:10 | 5642533 tarabel
tarabel's picture

 

 

Buy a house waaay out in the country. Process servers hate those long, fruitless drives.

Fence around the full perimeter of the property and buy a pit bull.

Never answer the door or hang around outside the house except after about 8pm.

Keep the blinds drawn and lights and music/tv going 24/7 so they can't tell if you are actually home or not.

Get a cash job so they can't find where you work to serve papers on you there.

Register your vehicles with a Delaware-based LLC as owner of record.

If you see a strange vehicle parked on your street, drive on by and come back in an hour.

Make up a phony set of papers to serve on yourself and carry them with you at all times. That way, if you do run into a real processs server, you can claim that you are looking for the deadbeat asshole as well.

Trade living spaces with someone else who is in the same situation. You live in their house, they live in yours. Nobody available to be served at either location. Totally sweet deal.

Hopes these ideas help.

Fri, 01/09/2015 - 11:45 | 5641732 ebworthen
ebworthen's picture

Jobs are few and far between so people take what they can get.

They usually have to drive to the job, and after six years of trying to survive in this great depression the old car gave up the ghost. 

Ever try to find a good honest mechanic who can competently replace your clutch/transmission/valve train?  They aren't cheap and don't do work on cheap credit.

However, manufacturers are pushing inventory with cheap credit, so people buy a new car so they can get to the job(s) that only lasts 6-9 months and pays crap.

Then, they can't make the payments when they lose work again.

Another symptom of our serial financialization bubble economy.

Fri, 01/09/2015 - 11:53 | 5641783 Prober
Prober's picture

Way too many people way out over their skiis financially. One of the lessons from the Great Depression, is that people with cash can benefit during economic crashes.

I have a pile of cash set aside to buy a big luxury diesel motorhome for loooong trips, a compact diesel motorhome for exploration trips, 2 diesel 4WD pickup trucks, 2 economical errand cars, and 2 specialized fishing boats to add to the fleet of vehicles and fishing boats that I picked up at give-away prices in the last crash and distribute among my 3 homes.

Waiting patiently with $$$ and shopping list for the automobile subprime market to crash  - YIPPEEE :-))

Fri, 01/09/2015 - 12:06 | 5641866 saveUSsavers
saveUSsavers's picture

Zandi's now an expert but only a year late? Cork him and Hillandrath!

Fri, 01/09/2015 - 12:23 | 5641947 Government need...
Government needs you to pay taxes's picture

I cant help but look into the status-quo future and see a massive paradigm shift away from high-NRG, high-cost urban and suburban living to lower-cost, lower-NRG rural agricultural living.  The catalyst is likely a confidence crisis in paper-denominated intangible assets (currency, bonds, equities, derivatives), which leads to .gov melting down in some fashion.  Many would call this a step backward, but the internet has made a lot of info-based service careers possible from anywhere.  Most folks who can make this choice continue to live in the cities and suburbs, but a lot of that isn't because they HAVE to.  The paper-asset world is burning through its credibility, leaving only real, tangible, productive assets as relevant.  At a point, equities are too abstract to be considered real, tangible, and productive.  In a world where a confidence crisis seems inevitable, a piece of paper saying one owns .00001% of a big company is worth less than a piece of paper saying $100 dollars on it.  Paper isn't very nutritious, but can be used for starting a fire, insulating a box, blowing a nose, or wiping an ass.  Back to the rural ag living scenario:  Sell the car, buy a tractor (or horses/mules/oxen).  Forget the commute.  Grow your own food.  Practice bartering services.  Identify key needs (a doctor or NP who can provide primary care services), and find a way to build a relationship with him/her.  Every step you take in this direction incrementally unplugs you from the Matrix.

Fri, 01/09/2015 - 12:34 | 5642027 Galts Disciple
Galts Disciple's picture

Some folks bought above their paygrade.

Fri, 01/09/2015 - 12:42 | 5642091 Mike Honcho
Mike Honcho's picture

Even more entertaining is the rim repo business.  A job ago there was a slew of characters working in other departments and I had multiple eye witness events.  Abysmal and shameful, well should have been shame but playa just keep on playin.

Fri, 01/09/2015 - 12:51 | 5642147 sputnik99
sputnik99's picture

Patrina Thomas, mentioned in the article for having her car repossed after she failed to make payments on the 20+% interest rate car loan she had taken out on the purchase of said 5 year old Chrysler, is opening a charter school in the 'cuse in order to educate the next generation of support staff to the 'ballers and movie starz crowd... 

http://www.syracuse.com/news/index.ssf/2013/10/new_charter_school_propos...

from the link - "Patrina Thomas and Angela Arrey-Wastavino have withdrawn their application to the SUNY Board of Trustees for approval of the school.... The proposed school, called the Central New York Institute of Academics and Performance, would start with 50 ninth-graders and expand by one class a year until it became a 200-student high school... The school would focus on fields based around sports and the arts."

Fri, 01/09/2015 - 12:57 | 5642182 rabbitusvomitus
rabbitusvomitus's picture

My neighbors who's home has been in foreclosure for two years qualified for a new car loan, WTF!  The APR was 13.9% but they're driving a brand new car. I wouldn't give em a loan for a matchbox car!!

 

No worries though, this time is different. 

Fri, 01/09/2015 - 13:02 | 5642214 ThisIsBob
ThisIsBob's picture

Reminds me of Bush bragging about how great things were because just about everybody who wanted one had their very own house.

Kiss of death?

Fri, 01/09/2015 - 13:03 | 5642239 Eagle Keeper
Eagle Keeper's picture

Cars are too damn expensive. This is another bubble.

Fri, 01/09/2015 - 13:22 | 5642325 Ban KKiller
Ban KKiller's picture

See Santander Bank. Spanish bank who bought in big time to American Sub-prime "folks". 

Good luck with that. Selling cars to people with addresses on the REZ? WTF, did you not take lending 101?

Fri, 01/09/2015 - 17:34 | 5643560 Muppet
Muppet's picture

What is Santander doing in the US subprime auto loan biz?   Just assinine. 

Fri, 01/09/2015 - 13:55 | 5642468 Bunga Bunga
Bunga Bunga's picture

Calm down, deteriorating loan quality is a completely normal symptom in the debt Ponzi end game.

Tue, 02/03/2015 - 04:59 | 5738120 Muppet
Muppet's picture

Only month later and Santander is heralded for great income from loans.   LoL. 

http://www.marketwatch.com/story/santander-profit-lifted-by-stronger-len...

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