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Subprime Car Loan Bubble 2.0 Full Frontal
With the total balance of auto loans for new and used vehicles approaching $1 trillion in the U.S., the folks at Experian want you to know that no matter what the numbers say, there’s no speculative bubble forming in the industry. Just ask Melinda Zabritski, the group’s director of automotive finance, who is quick to dismiss the growing chorus of Chicken Littles who are concerned about subprime auto lending:
Whenever there is an uptick in the number of loans to subprime and deep subprime customers, there is the potential for a 'sky is falling' type of reaction, [but] the reality is we are looking at a remarkably stable automotive-loan market, in part because consumers are continuing to stay on top of their payments.
That would be great if it were true. Of course the reality is that, according to the NY Times, early delinquencies (i.e. borrowers who have missed a payment within 8 months of origination) are at their highest level since 2008:
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 [and] 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 [also] the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.
Combine that with the fact that the percentage of total auto loan originations made to subprime borrowers surged to 27% in 2013 (the highest level since 2006), the same year that 1.1 million U.S. households took out auto title loans (i.e. the new home equity loan), and you’ve got a rather strong argument for the contention that anything we learned in 2008 about the perils of loose lending standards has now been completely forgotten.
Reinforcing this point is Wells Fargo, who notes that things are now officially back to “normal,” where “normal” is amusingly defined by the conditions that prevailed in 2006:
Lending standards for households and corporations have eased to the extent that they resemble the last “normal” period of lending seen in 2006. Credit has expanded rapidly in some loan categories, which has in turn boosted spending and investment.
Of course the bad news is that Americans are again overextended at just the wrong time:
...should interest rates rise later this year, some households and corporations may find themselves overleveraged as interest rates and borrowing costs rise. When looking at interest rate sensitivity by loan product, we see that auto loans rates are the most sensitive to changes in the fed funds target rate. In addition, we can see that for each one-percentage point rise in the fed funds rate, the interest rate on a 48-month new car loan rises 0.61 percentage points.
The prudent thing to do, from a lender’s perspective, is to tighten standards when it appears borrowers are exhibiting a propensity to take on an undue amount of risk. Instead, standards are actually falling as risk-taking increases:
Although firms continue to ease lending standards, they have perceived increased risk among some loan types.
And, not surprisingly, recklessness is most prevalent in the two categories that have combined to underpin consumer credit growth post-crisis:
Among retail loans, student and auto loans saw the largest increase in 2014, as more than 40 percent of firms reported increased risk.
Most disturbing of all, lenders seem to have reverted to their pre-crisis mindset: “If we can sell the loan, who cares about the creditworthiness of the borrower?”
In 2014, a third of all firms originated retail loans with the intent to sell or hold the loan (as opposed to the sole intention to hold the loan). This trend indicates that some firms could be extending loans that they consider less creditworthy and could be eager to get these higher-risk loans off of their balance sheets.
As a reminder, ABS issuance hit its highest level since the crisis last year with student and auto loans accounting for the lion’s share. That's no coincidence.
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Whats this bullshit? I want some REAL full frontal! On a serious note, it makes me feel better to know that so many people with these "luxury" cars dont actually own the things, they just finance them.
My POS '92 runs, I can work on it, and it's paid for.
'95 Grand Cherokee.
Needs a full tune-up, soon, but with 212K on the lock she runs like a champ.
My '97 Grand Cherokee is running strong at 180K miles. Needs a little TLC but it's cheap to maintain. I can get a whole new engine cheaper than getting a fuel pump for a new Beemer.
It's better to forclose on 1 million cars than 1 million houses.
Houses are off limits for the next 50 years...bookmark it
This will kill the car industry. They're over producing as it is throw in a load of second hand repo'd cars to the mix and prices will plummet.
Just redefine the cash for clunker program criteria, add a $15000.00 rebate incentive and badda bing badda boom, problem solved. Oh, ahh.. never mind the big poop pile behind door #2016.
Since last summer, Edison, which serves nearly 14 million customers, has been firing its domestic IT workers and replacing them with outsourced employees from India.
http://www.latimes.com/business/hiltzik/la-fi-hiltzik-20150222-column.ht...
barry's job creation.
Go price used cars, prices already crashed.
'93 Nissan pickup. Small old man's truck. Picked it up at 7000 miles in '97 and still runs like a champ!
Fuck me, I thought my 2002 was really old.
1991 Ford F150 Lariat XLT 4X4 with a reserve fuel tank. (I call her 'The General')
& she's NOT for sale
1997 Saturn SC2 249k. Replacing a front wheel bearing his weekend.
Remanufactured GC engine (new is no longer available) is $1200 + $400 core.
New BMW fuel pump is $500.
Livin' high with a much newer 2005 Taurus, also paid for. I guess that puts me in the top 10%.
2005 infiniti paid for 145,000 miles like new why do I need a new one. Who are these people buying new cars I read so much about and why do they spend 30,40,50 thousand when the ilder cars are so much better. If you sre sub prime wtf are you spending that kinda money on a car for. You know its like 2007 all over. With one exception better to have them driven than in a lot in timbukto. Suckers finance new cars
2007 Mazda B2300, 5sp man.
Hated among the trucknoscenti as too .... trucklike.
Paid 11.4 k$ cash as new.
Gets the work freaking done. Simple. Maintainable.
2005 Chrysler, paid for since day 1. Looking forward to buying some bankrupt fool's 100k car for 20k when this thing blows.
For a time, Calgary used to be the Bentley sales capital of the world, for a time.
2000 4runner 117k, paid $5,000 cash a year ago.
Wont trade up for a long time. Worst thing in the world to put your money into, even worse than Ag
/sarc.
Ive gotta 2001 Chevy Prizm..bought it off of Craigslist for $1500.....its a real nice car, actually its a toyota corolla built for chevy.
Mine obviously was an R&D project, that evidently slipped through the QC dept. and onto a dealers lot one day. It has a 2 cycle engine that requires a 32:1 mix!...(1qt of oil per 8 gal gas) It has one of those self mixing deals on it like a fancy bass boat 2 cycle motor!, you just pour a qt of oil into the sump on top of the engine, and it takes care of the rest! The Wife said she "Would not be caught dead in this thing" (which was a strange comment, seeings how the trunk is certainly big enough to easily stuff her into?)...I replied "I might be caught with you dead in this thing someday"
I recently put on a jaguar hood emblem and jaguar stickers...I get all sorts of trim, never have to change the oil, and great mileage too!
Just don't put any Jaguar electronics on it.
Cat pussy or human?
Well if you "own" a late model automobile (2013 or newer), you are a fool. Strive for the non-parabolic region of the depreciation curve.
I've been saying it for years, there are few nice new shiny cars that are actually paid for anymore. It used to be a status symbol when you had a new car because either 1) you paid cash for it or 2) you had really great credit and could borrow. Those times are gone, anyone can finance a new car so it means nothing.
When you can get a nice vehicle with no effort at all it means nothing. And as long as people can be financed around the same payment as they had before they will roll their old negative equity loan into a new one and move on. Problem with that is you can do it about three times before you're done.
People still have a spending problem because they have made little conscious effort to shore up the finances. They're so oblivious to everything around them and it extends into their financial situation as well. It's like the lady on the phone getting on the on-ramp in a Suburban who's distracted and going about 20 mph but has no clue that there's a dozen cars backed up behind here while she prattles on on the phone...clueless.
Not to worry, it's contained. Trust in Ben.
https://www.youtube.com/watch?v=INmqvibv4UU
Do they get to keep their cars when they default, as in the housing bust?
I am debt free...and I intend to keep things that way.
I drive a 20 year old "beater" of a pickup. I'll just repair it when needed. People don't want to ride with me--fuck 'em :)
I have a couple of credit cards and a debit card I use when I can't use cash, or don't want to use cash.
I keep the balance(s) on the CC's paid off by funds xfer from my local bank.
Still stackin' :)
hairball
Nobody is debt free in the U.S. Your share of the Federal debt is about $500K.
only if you are a citizen
Renunciation of US citizenship costs what, $2400? Compared to half a mil, that's a steal.
Show me the bill in my name. I have been off the grid for so long that I can't even get a credit score. Like I need or want one.
If you file a tax return or have an active SSN, you're still on the grid.
Ron Blue, a notable financial counselor, opined that, "Leverage is that which you borrow that you can pay back; DEBT is that which you borrow that you can't pay back".
"BAD THINGS HAPPEN TO GOOD PEOPLE" !
Bad people chosing to do bad things if your sub prime
When you can print up unlimited amounts of fiat, backed by state monopoly violence, you can take "risks" with sub-standard loans. The whole system is a joke, and the middle class is the punchline.
How is a student loan an ABS? I thought it was an unsecured loan you cannot eliminate (usually) in bankrutpcy.
I wondered that too. Also credit card debt. Just because they bundle the debt notes and sell them as securities doesn't make them "Asset Backed Securities". There are no tangible assets backing the securities. They're shitty Collaterized Debt Obligations (CDOs).
They now call wild-ass speculative investment funds "Hedge Funds" too. Nothing hedged about them - pure bullshit terminology to sell product.
Ass -> Asset.
The asset backing the student loan is your life, as in you owe this debt for the rest of it.
Ya'll are fogetting the new US program: everything goes straight up and never comes back down until the bombs drop.
My first car was a 1990 5.0 Ford Mustang I purchased in 2001. Kept it for 8 years. Had to let it go. I was finding to many body issues with the vehicle, althought the engine ran strong.
Unless you live in dry, warm client, keeping a car built before 1999 in good running order with little issues is pretty tough when the municipalities insist on salting the roads in the winter until there's this quarter-inch built up crust on everything.
I had an 89 LX 5.0 back in 1992 what a sweet little car. Love mustangs and camaros but, mustangs more.
If the originating bank had to hold the loan for, at least, half of the loan term, then we can start to improve loan quality and get back to normal. Loans are not free money. You need a printing press for free money.
that is so true. My dad was a banker and I remember when they started just buying all dealer paper. Things went quickly to shit and have ever since.
So what ... if rates go up, they will roll out the 120 month terms for car loans. Problem solved.
Anyway, who is ready for the Oscars! I hope Kim Kardashian is there!
Amazed at how many 72-month car loans are the new normal. I'll keep my 2005 Acura RL--great car, and it's paid for. Bulletproof in winter with AWD.
Exactly. It used to be that people could afford the payments over 36 months. Then it became 48, then 60, now 72 and I've even seen 84 months on some pricier models. I bought one new vehicle in my life- a Ford Escape - in 2009. Driving since '88. Never again. Have 140,000 miles and will drive it until I can't rely on it. But I pissed away 10 grand not finding a vehicle lightly used for a few years.
Last week I talked to a man in the car business for 45 years. I was just sort of playin' dumb and asking questions. He was lamenting the fact that these 72 and 84 month notes were in effect killing demand. I stopped asking questions when he said that today buying a new car was is like buying a new house. I'm not exactly sure how he meant this but I do hope he is bright enough to know they are not similar at all.
Buying a car with a 7-yr loan means the customer won't be a repeat for at least that long. It's also about how long most people stay in their homes too, so in that way, they are similar.
Buy the car you didn't think you could afford with our new 84 month loan.
Boat loans go out to 120 months. I'm sure that the car world is heading there once they figure out how to deal with the asset declining in value faster than the balance due.
That's good and all but just remember,
NO BUSH
NO CLINTON
1996 Honda Civic hatchback, bought new for cash. I noticed the other day that the nice Hispanic lady who cleans our neighbor's place (I do my own cleaning, badly I admit, but I do it myself) drives a nearly new Honda Accord. I look around me here in Silicon Valley and I see almost no old cars; everything driven by every demographic is new and mostly big. Thank god for license plate scanners, otherwise we'd probably be constantly stopped by the cops due to our obvious deviance (/s, I guess). Once in a great while I see an old car driven by a crabby-looking old white dude, but that is a rarity.
Question: are there any cars anymore that have manual windows? Any that have old fashioned non-electronic keys? Any that have real visibility? Am I going to have to drive this car until I'm squished in it like a bug by someone's Highlander?
We are a fan of roll up windows and manual door locks too. We are looking at the Toyota Matrix they made some with roll up windows and 5 speed manual shift. Not sure about the door locks though. I have also seen some newer base modle Nissan pick ups with roll up windows.
The Matrix did look promising when I checked it out a couple of years ago. They stopped making it as te Pontiac Vibe, so I wasn't sure that they still made the Matrix itself. Thanks, I will check it out again.
Actually, yeah, you can still get these options. On a new barebones GM Sierra 1500 utility truck version. My old man bought one 2 years ago. Made to order, single cab, bench seat, no power locks, manual roll-up windows, standard radio (no CD or tape deck!) and with metal key.
Paid $21,000 for it. Runs strong.
That sounds good for a rural area, but here in an quasi-urban area I would probably mash everything I tried to park next to. That is an amazingly reasonable price, and that is really great that it could be custom made to not have power locks and to have manual roll-up windows. Maybe that is an option for other cars; I didn't think of checking into customization, thanks for the idea.
The fleet of vehicles is aging, and too many people are driving their cars until the wheels fall off and are not purchasing new cars. So, typically 17 million news cars enter the market every year, which provides inventory for the 30K to 80K mile intermediate market, which provides inventory for the low end of the market.
Without the influx of new vehicles, the lower end of the market is saturated with vehicles which would normally head for the scrap heap, and those who can afford to drive a middle market vehicle cannot find one. Everyone ends up driving vehicles with 200,000 miles on them! Its a travesty!
So, you should do your part to keep the aging auto market in balance and go out and finance a new $50,000 dollar vehicle so that it can depreciate 10 grand in the first year and then can be sold into the intermediate market, so the low end crap vehicles can be scrapped. Without your help, the market does not work!
Right now you can get 84 month financing and be underwater the minute you drive it off the lot!
It is a nice feeling when it is paid for.
When you have anything that is paid for, regardless of age or condition as things can be made good again, it is yours. You don't have to stay awake at night knowing if you are late on a payment your "credit score" will be affected.
Screw credit scores and screw credit. If you want to buy a home and need to borrow money, the property is "security" for the lender. No pay no get. Other than possibly a home, what does a person need "credit" for?
I paid $12800 for a brand new 2014 Nissan Sentra using TrueCar. Why do we all need $50k cars again?
Why? ...for the "PRESTIGE!" lol
Legacy costs.