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LTV 137% - In Unprecedented Development, Lenders Now Take Record Losses On Every Used Car Loan
This wasn't supposed to happen.
With the US consumer hunkering down in 2015 and barely spending more than in the comparble period last year, the only silver lining had been auto sales driven almost entirely by access to cheap credit; in fact, as the chart below shows while revolving credit has barely budged from its post-crisis lows with consumers still failing to fall for the "recovery" narrative, Uncle Sam's zero cost loans which are now reaching well over 6 years in average duration have provided a generous support for the US auto industry. In addition to the bubble in student loans, car loans have been the only confirmation that the US consumer - that driver of 70% of the US economy - is still alive.
So in a world in which one can buy cars now and worry about the costs later, much much later, auto sales should have been soaring as they have been in recent years, right?
Well, not for GM, which moments ago reported a surprising drop in June auto sales, which declined 3% M/M to 259,353 from the prior month, driven by an 18.1% plunge in Buick sales, with Chevy and Cadillac also posting declines, despite expectations of a 3% headline increase. This even as GM announced pickup deliveries were up 33% with the Silverado up 18%. Curiously, GM's main domestic competitor, Ford, reported a 9% drop in F-Series sales in June.
What is more surprising is that even as GM posted its first monthly sales miss in a long time, it now appears to be engaging in yet another stealth government bailout, this time not on the balance sheet but the income statement.
As GM reported, even in a month of broader decline in sales, "State and local government sales were up 6 percent in June, with full-size pickup and Tahoe PPV deliveries more than doubling."
The US government is buying GM pickup trucks now?
It gets better: "State and local government sales are up 19 percent calendar year to date."
So just what is the dollar amount of these soaring government purchases from a company that was bailed out by the same government several years ago? That information is not disclosed, as otherwise it may crush the fiction that it is the US consumer that is behind GM's powerful "rebound" and not the entity that has an unlimited balance sheet.
But what is most concerning in light of weak sales not only from GM but virtually all other carmakers, both domestic and foreign, is what was reported in the OCC's semiannual report on "Semiannual risk perspectives" in which we learned something truly stunning: according to the OCC, "60 percent of auto loans originated in the fourth quarter of 2014 had a term of 72 months or more. Extended terms are becoming the norm rather than the exception and need to be carefully managed."
But the real stunner is the following: also according to the OCC, quoting Experian, "average advance rates well above the value of the autos financed. In the fourth quarter of 2014, the average LTV for used vehicle auto loans was 137 percent." In other words banks are assured to take major losses on their loans and they are still lending at a record pace. Or rather, not so much banks because as we have shown before, the primary source of auto loans in recent years has been just one, as shown below.
Believe it or not, it gets worse:
"advance rates for borrowers across the credit spectrum are trending up, with used vehicle LTVs for subprime borrowers (credit score < 620) averaging nearly 150 percent at the end of 2014 (see figure 24)."
For those who are confused, an LTV of over 100% at origination guarantees that the lender will suffer losses on the loan (absent some dramatic price bubble which sends car prices soaring in the coming years).
This explains why the Fed stopped reported LTV data for auto loans altogether and one has to rely on period snippets of updates to get a sense of just how terrifying the real Loan to Value situation currently is.
So what is going on here? Well, for lenders, car loans have become a definitive loss leader. How do they recover the losses on the loans? "Sales of add-on products such as maintenance agreements, extended warranties, and gap insurance are often financed at origination. These add-on products in combination with debt rolled over from existing auto loans contribute to the aggressive advance rates."
In other words, in the US, the car industry has been quietly transformed to a razor-razorblade model, one in which it is not the manufacturers who benefit on the razorblade sales but the lenders!
That this too will result in an epic disaster is not a question of if but when, which is a recurring question considering there is now a bubble virtually anywhere one turns.
Source: OCC
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Hookers will paying us to give us blowjobs in the future.
Even though the sky is falling, we believe we can print more sky. Party on!
Trees grow to the sky and hold it up. ... Garth.
Philo Beddoe for fed chairman
How hard is it to reposses a car for non-payment of the loan...???
the car-buyer is just a pass-through for the bank to flow money to the manufacturer
that is, to flow money to the manufacturer's shareholders
the shareholders being, of course, shareholders and directors and executives of the bank itself
which is not a conflict of interest
instead, it is an opportunity. an investment.
Around here most of the car loans are for expensive foreign made cars. How does that help our economy?
Sometimes it's a good idea to have facts for your soundbite. Like the fact that Audi, Mercedes and BMW have plants in the US. Maybe your neighborhood buys Porches and Lamborghinis.
I read yesterday the most American made car sold in North America is the Toyota Camry.
Ford and Chrysler no longer qualify as “American Made”.
Cars made in America? Chrysler, Ford no longer qualify
http://fortune.com/2015/06/29/cars-made-in-america/?xid=yahoo_fortune
"unprecedented" ????
I thought the climate alarmists had a trademark on that word.
How about just "highest LTV since Lehman?"
...it was awfully nice of the poster to cite a source for the last chart.
"Hookers will paying us to give us blowjobs in the future".
But only to a certain point. It's called a Teaser rate?
Obamacars!
But the severe drop in Buick sales is very telling of the over 60 crowd hunkering down now.
And glad to see pickup truck sales are strong cause it means I'll get a good used 4x4 for under $10,000 in a few years.
You can get a good used 4x4 pickup right now for under $10k.
Not where I live.
Arbitrage.
Thats what I am waiting for, myself I like the Toyota Tacoma's
Tacomas are wonderful...
Or should I say were wonderful before Toyota fucked up the rear leaf springs
I'm sure there was a recall on them for that problem.
Nissan Frontier might work for me Too bad Ford stopped making the Ranger.
onwe can still buy a used Ranger w less than a 100K for $1500.00
PArts are abundant. The Mitsubishi motor runs forever or slam a rebuilt in for 800.00 (including lanbor). The Ranger is the best used small 1/2 ton going. Bar none.
Here in fl. the ranger is just considered a rust bucket.
Then how come there are none of them on the roads (at least I don't see them). All are Nissan or Toys.
Exactly! I drive used diesels, the only affordable options for that engine. My 2006 is getting some heavy off-road use for work. Nice to know that there will be plenty of trucks on the market. I'm interested in the new Nissan diesel, but it will be a few years for a nice, affordable one.
I bought my 1st gen Power Ram with the Cummins for $4k.
=]
Unsustainable systems are unsustainable.
+10 Outstanding point! The underlying grift is not visible to those not looking past the hype!
That's why everyone and his brother gets a car loan, it's all just funny money
That is not the point. It's the loss before reposession, the LTV. Repossession will only be an add on, non-recoverable cost/loss on top of the loss of the value of the assest
You're asking that as if you went long on margin last Wednesday.
We have got to bail out the lenders NOWWWW!!!!!
And to those retard economists at the Fed and other CBs, that would make perfect sense.
When someone is tight on money and is having trouble making car payments, they usually stop doing the regular maintenance. How much will that repo'd car be worth at auction? The lenders might get 30 cents on the dollar.
The gov't needs the pickup trucks to cart us away to the FEMA camps? Or the bodies to the mass grave?
Neither - they need to shake loose a bunch of used trucks to resupply ISIS.
I knew that Magical Kneegrow would pump up Q2 GDP, by buying Tahoes. The pickup trucks are a surprise.
What sort of alcohol should I digest this news with?
https://www.youtube.com/watch?v=Qz-5c9SEjOM
FWIW: That's the only scene Chevy Chase and Bill Murray were ever on camera together.
Originally the movie didn't have that scene and the producers went nuts saying u have the 2 hottest comedians and no scenes together. They hated each other but glad they got that classic in the movie. Couldn't do that comedy today, hurt feelings of gopher lovers.
Originally the movie didn't have that scene and the producers went nuts saying u have the 2 hottest comedians and no scenes together. They hated each other but glad they got that classic in the movie. Couldn't do that comedy today, hurt feelings of gopher lovers.
Depends on whether you want to be blind ,or just blind drunk.
151 rum of course, light a match nearby to get that new car smell
everclear works magic - and can also be used as an anesthetic or general anethesia
Crow Royal is my drink of choice.
Generally, I eat crow. Do you have a new way to ingest it?
As you can see by my posts on this thread I started early today.
Lagavulin or Oban with a couple of cigarettes. Yeah....it is bad for me. Boo hoo.
Absinthe FTW!
Beware Doctor! A family friend who drank Crown Royal exclusively, has just died of liver cancer. He used to keep two bottles at home Crown Royal for himself, and he would pour the guests drinks from a Windsor bottle. Karma?
Don't worry about quality, concentrate on quantity.
I suggest one of these fine wines.... http://bumwine.com/
Ask Alice.
... when she's ten feet tall.
Cannonball it!
137%? Pffffftttttt, that's nothing. I'm taking a second mortgage out on my car to buy stawks. I only have to make 25% to cover my interest costs. No biggie.
Time to open an E-trade account......
Triplicate? Apparently I'm retarded.
Dupe........ Okayyyy...... that was weird.
RU ready for Surgury Doc?
As soon as I finish this drink.....
In before the "I drive a 1989 POS paid for blah blah blah 200,000 miles do my own maintenance, wouldn't drive a new GM if they gave it to me" comments.
Your point? It's nice not having an auto payment. It's also nice not having to pay shop rates of $80-$120/hour for somebody else to work on the vehicle.
i have an old car to give the impression that there is nothing to borrow or steal here, lol, no shit and it works. I garage the new one.
Leave the windows down with the keys in the ignition. No self respecting Obama's son would dare be caught stealing it!
I drive a 76 Buick Skylark. I wouldn't sell it even if you offered me $500!
I would never, and I mean never buy a GM or Chrysler product. I don't support open fascism-socialism.
Agree. But Ford's not making it easy to buy a new truck either. An aluminum unibody F150? WTF? At least an accident won't cause my old body-on-frame truck to morph into a crumpled beer can.
Cant blame ford for that. Our old trucks are destroying... DESTROYING! the planet. The pope is siding with algore and the current leaders (lol@leaders).
Leading from their behinds.
cue twilight zone music.
i expect some sort of kick back scheme has been arranged to reward the pope for backing the economy killing carbon taxes.
You can blame Uncle Sam for the aluminum body trucks and full size 1/2 ton trucks with turbo-charged V6 engines. They keep raising the CAFE standards and the MFGRS have to figure out new and interesting ways to up their vehicles overall fleet fuel economy. I drive a 2004 F150, running strong as ever with 160k on the clock, hope to have it another ten years. If you want a vehicle with rear-wheel drive and a V8 engine you'll have to go to an F250, solid trucks as well. An Eddie Bauer or HD version of the F150 comes with a V8 but isn't worth it IMO.
So, that leaves what? What car do you drive?
I wouldn't drive a GM if they gave it to me. I'd sell the POS and get a Toyota or Honda. Anyway, my used car only has 160,000 miles on it. You keep the car payments. I'll keep the reliable used car and my money.
"... banks are assured to take major losses on their loans and they are still lending at a record pace." As the saying goes, they can always make it up with volume.
The investors in the ABS are going to take the hit, not the banks.
2007/8 all over again.I wonder if they are playing the same games in the REPO
market ,using collateral multiple times again as well.No reason why not, not like
anyone got jailed over it.
Yes, the high yield chasers are clammering for more, more, more!
The investors don't read the fine print. EVER.
See: Santander bank. They loan to dead dogs if it has an address.
"State and local government sales were up 6 percent in June, with full-size pickup and Tahoe PPV deliveries more than doubling."
Just about every state budget FY starts july 1st ... and EVERYONE (in civil service arena) who controls budget lives under the same mantra
"Use it or lose it"
I don't totally agree that LTV over 100% guarantees losses.
The finance company I worked for did many transactions where the LTV was over 100% - we capped it / would no go over 130% - and we made millions of dollars -
The majority of people that take out used car loans for more than the car is worth keep making the payment until the loan is paid off - or until they roll it over into another used car loan.
The key is DO THEY HAVE A JOB.
If they have a job they make their car payment - and the LTV doesn't mean shit -
The only time LTV come into play is when the borrower defaults and you repo the car - and sell it for less than the outstanding loan value.
Given the fact that nobody works, sounds like a pretty big problem to mee
And YOUR company debt to loan ratio was?
On the day the loan was made - the average was around 115% LTV - almost never less than 100% - the used car business is more about financing than it is about cars.
We had the dealer on the hook if a loan went bad in the first year - which did happen -
The dealer would then help with the repo - and "sell" the vehicle to someone else - which was basically taking over the payments on the original loan. We rarely lost on a transaction that went bad fast.
Most of our stuff was 36 - 48 months -- once someone gets past 20 months they almost never default unless they lose their job. The car payment is the first thing they pay - even before rent -
I have a harder time seeing the 72-84 month term loans working out -
It is a numbers game -
You make $3,000 each on 90 loans (270K) - you lose $7,000 each on 10 loans (70K) -
You are still making $200K - Our return on equity after tax was almost always over 30% --
I made good money - but I always felt dirty - after 3 years I moved on to something else.
Thank you.
You have atoned for your evil past and are hereby forgiven.
Sally forth.
Yes. This is garbage. The writer has no clue what she is talking about.
The loan is grossed up with the full interest cost, closing costs, commissions, etc. Nothing new.
Nothingburger
Absolutely convinces me to try to find a 0.9% 108 month loan for my next nearly new purchase.
Cars are merely a new form of Flow for a desperate Cabal seeking QE alternatives.
It's either that or build empty cities. There's only so many options for government jobs programs, after all.
Who says the little guy is not getting bailed out.....this is proof...
Well they are not assured a loss if the buyer makes all their payments, they are assured a huge profit. I think he forgot to add that info.
wasn't that the same reasoning that mortgage lenders leveraged?
It works brilliantly.......
Until it doesn't.
"they are assured a huge profit"
These loans of money in excess of collateral values are speculative bets that no severe recession will occur to trigger massive defaults. It is a bet that the forces of deflation will keep the real value of dollar payments 3 to 7 years hence relatively stable (that gold and silver will be "dead money" for 3 to 7 years). It is a bet that outsourcing American jobs to Asia does not accellerate and thus require a substantial fraction of these borrowers to stay at home, go on welfare and default the auto loan. It is a bet that a new "car pooling app" does not catch fire and cause defaults.
So many things could go wrong.
Correct Mr P, which is why I included "if they make all the payments"
I've been waiting for all this shit to explode for years now, but they papered everything over in 2008 and I wouldn't be surprised that they keep papering things over through several more collapses. So yes, this farcical economy can stumble along long enough for the lender to get all his payments... the bastards
Yup. And when the paper finally fails, it will be the magic reset button known as "war" coming to the rescue.
137% LTV?
What a toxic cocktail we're mixing. Used car prices about to go DOWN.
Straight from industry's mouthpiece:
For the past few years, off-lease vehicles have provided a much needed shot in the arm to
the depleted used vehicle population. But leasing’s historical pace threatens serious
ramifications for the used car market going forward. At these unprecedented leasing levels,
off-lease vehicles are expected to continue to account for millions more near-new vehicles
than the used market has ever seen.
... One trend that has already emerged from the glut of off-lease vehicles is a dip in prices for near-new used cars. The supply of these vehicles is growing from amplified leasing in these segments http://static.ed.edmunds-media.com/unversioned/img/car-news/data-center/...Thank you for the reporting/link.
Time to cue up the "Cash for Near-New Clunkers" spin.
I guess they're finally running out of places to ship all of those used cars.
My truck is on life support.
Ford just sent me a coupon for $2500 off a new one.
The credit union just offered me a 48 month loan at 1.49%.
Somebody stop me! Please!
Take a look at used trucks on craigslist.
Learn to use the search features to narrow down what you are looking for, and at what price.
Be willing to travel to get the best deal.
You will save a tremendous amount of money.
If you truly believe inflation and currency devaluation is coming.
1.) Take out that huge loan.
2.) Use cash to buy gold.
3.) Sell gold at huge profit.
4.) Pay off loan in devalued dollars.
5.) If deflation happens, lose shirt and ask gov't for bailout.
Paying cash for stuff is so old-fashioned and boring.
Why bother with 3/4/5? Buy the gold (not coins) and declare bankruptcy.
Don't have to be on life support. I'm already setting up a dealer to flip the wife's 2012 Acura for one of the 2014s coming off lease that are clogging up his lot.
Just one more component of the largest credit bubble in the history of the world.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
more free shit for everyone...
"We lose money on every sale, but we'll make it up on volume". Every Japanese company in the '80s.
If you have an early 1970's car (pre-1973 preferably), and the hull isn't rusted out, consider yourself fortunate. Yeah, it requires points, condenser and a timing light (unless perhaps a Chrysler product, as I think ---- correct me if I'm wrong, they were the first to introduce electronic ignition sometime around '71 or '72?), but you Can Do It.... Carburetors are still for sale and the maintenance is comparatively 'cheap'. They are also considered 'classic' by DMV standards and you probably don't have to smog it. Potentially (?) EMP-proof too...?
EMP might take out the AM radio
Ain't it the truth! In 2002 I had a 1994 Ford and the dammit key got wet one day when I was walking out to go to work in the morning (no f-king kidding -- ONE DROP fell straight from the roof onto the sensors). Could not unlock it! Had to miss a day of work and had to get a new key made for $100 and a wait for 10 days for a replacement. Luckily, I lived in Sydney and had the option of bus/train to work. I now live in Tennessee, and believe me, if your car goes out here, you're screwed!
Some days i wish I still had my '67 Valiant or '71 Duster, for times like these.
You're right, the insurance is dirt cheap.
I walked in and told the dealer I wanted a full loaded limited at 0% interest, 60 months. They gave it to me.
banks have no downside, we have the downside
It all started with Obama's "Cars for Cash" to save the environment. What a debacle!!!
Local and State and Federal Governments and Agencies are buying a significant amount of the vehicles, the leverealge is likely through those borowers.
Government can probably easily agreee to cast out payments like to play games to balance budgets. Politicians and bureaucrats are just the kind to sign such deals in order to cast themselves as public or inter-departmental geniuses finding questionable but expedient short-term solution to aquire and dispense vehicles to a department/progect/bureaucracy.
**** As GM reported, even in a month of broader decline in sales, "State and local government sales were up 6 percent in June, with full-size pickup and Tahoe PPV deliveries more than doubling."
The US government is buying GM pickup trucks now? ****
Did GM beat out Toyota on the new CIA/ISIS contract?
OK.
Dont get it. How do they arrive at LTV greater than 100%. Are they giving cashout loansk?
Say the 2010 Honda Civic has a current Blue Book price of $12,500 -
The car dealer sells it to a guy that has poor credit - but does have an OK job for $15,000 at 8.5% for 48 months.
That is $369.72 a month - zero down.
The loan was REALLY made by a finance company - the dealer doesn't provide the loan - even if their name is on the contract as lender - it is assigned the second the loan is made.
The finance company does the loan at 6% (the rate on the contract means NOTHING)
The value of a $369.72 payment at 6% for 48 months is $15,743 -
The dealer get paid $15,743
15,743/12,500 = 126%
EDITED
BTW - many cars (new and used) are sold as a payment per month - it is not even - this car is $15,000 - it is I can put you in this car for about $350 a month.
When you go to a dealership that is why they ask - how much can you afford per month?
This Blue Book you speak of
Is that dealer asking price or retail price?
Arent BB values somewhat inflated?
Blue book is just a generic term - several companies provide estimates of what a car "should" be worth - wholesale - retail - private sale - plus the condition - excellent, good, average, poor -- whatever
I think Kelly Blue Book is one service - Edmund's also does it
This is the "value" part of LTV
I guess you could make a good case - the car is worth what someone will pay for it - but it should IMHO be what a reasonable informed buyer will pay.
There was a time way back when - you go into a bank and they would look up this information in a big book that also included "loan value" and they would not lend you more than this on a vehicle -
When I was a Sophomore in high school (1974) I wanted to buy a car.
I found "the one" guy wanted $1,000 - it seemed like a good deal - I went in to the bank (small town) to get a loan -
My banker looked in "the book" - told me that the loan value was only $800 and he couldn't loan more than that.
I had already told him I needed $1,000.
Banker called the guy selling the car - told him he could only loan $800 on it and got the guy to sell it to me for $800.
I got the loan - and bought the car, a 1968 Chevy Impala, 2 door coupe, chrome wheels, bright yellow & super clean.
It was the best $800 I ever spent - it was a real chick magnet.
So I don't know when exactly bankers turned into greedy asshole bastards - but my small town banker in 1974 was a good guy.
They're selling the cars at prices inflated well beyond their actual value. You normally see this in used car sales, but it's increasingly common in new car sales, the tactic is to sell the car on a "how much do you want to pay per month" basis vs. negotiating based on sticker price (which is usually juiced well above the MSRP). By offering a 72 month loan with a cheap IR, you can get the payment per month to look really attractive, even if you're totally screwing the customer on the sticker price.
The fact that people actually buy 'payments' instead of analyzing the true cost of something is a commentary on our disfunctional school system. There are whole business models (rent to own places come to mind) built on sheep who can't do basic math.
Yep..another "loss leader" sale to move the merchandise...
The stealership makes MORE money (not less) when they sell a car for more than it is worth.
Sounds like there's still excess Global Capacity, and the car Makers are fighting for survival.
That, plus the fact that the Fed's Ponzi Casino must maintain VOM.
I keep getting cold called, mailed, and emailed from a local GM dealer, a place I went to one time to get a recall done. You can smell the desperation.
Does this take into account the massive origination fees that get tacked onto the loan... due up front? Subprime borrowers are sometimes asked for loan fees of a few thousands dollars as part of their "down payment". This actually lowers their LTV considerably.
borrowers will also often take out a bigger loan to cover the taxes and title fees,
which would also affect the LTV ratio.
" No one saw this coming...."
baaawaaaahhaaaaa......
Total BS. Nobody loses if the loan is payed no matter what the LTV.
Beat me to it.
THE Big "IF" is key. http://www.wsj.com/articles/car-loans-see-rise-in-missed-payments-142076...
"Record losses on every used car loan" is Bullshit.
Exposure to record losses on a loan portfolio, absolutely.
Words have meaning.
This is a sign of consumer distress as buyers of new cars are forced to take Dave Ramsey's advice and get more affordable used cars while rolling over the shortfall from the original new car purchase into the used car loan.
137% LTV does not "guarantee" a loss for the lender--not as long as the loan performs. It may be stupid because the loan is 37% unsecured, but there is no loss unless the borrower defaults.
...............
http://www.wsj.com/articles/car-loans-see-rise-in-missed-payments-142076... Sure it does; given the shaky economy, deceitful lenders and greedy buyers.
As my husband an I are an old truck family, I found myself having to sell one of the trucks for a car due to a medical issue. I flatly refused to go to any dealership and contacted by farmer friend who was patiently waiting for me to sell one of the trucks for 3 years. He contacted a relative and found me a gem...a 1999 cadillac with 55k orignal miles and what was needed for transpotation due to medical reasons. Got it cheap and paid cash and hold the title. Priceless.
'99 was a good year for Caddy, and BTW, you get red carpet treatment at their dealerships when you pull in, or make an appointment. If it's a Northstar, the worst thing that might happen to it is a water pump in the next 50K miles. Other than that, they've had minor oil consumption issues. A friend's '02 has over 200K on the clock, and runs like a champ. 28-30mpg on the highway, and 300+ HP.
Wish I still had my '84 Ramcharger, WA State vehicle I drove only during the summers here in NY. I now drive a '95 Grand Cherokee from NC as my daily driver, can't complain. No stupid payments.
1983 Coup De Ville for me. Bought it 5 years ago as a second car and paid $2500. It had 72k miles at the time. More room than a mini-van and rides so nice. Very decent mileage on the Highway too. Love the look of it. I pay $35 a year to tag it. I'm hoping to drive this thing another 10 years and or til it blows up. Heck it might last 20 more years...My main ride is a 1983 Goldwing in the summer. That will probably last me another 20 years too. $15 a year to tag that one.
Love my Caddy's. I have over a million miles on Northstar engines since the early 90's. Always buy used ones and trade at around 180-190K. Currently driving a 2005 Deville w/163K & wife has 2005 STS w/110K. They will use a little oil as they age, but not a problem. I did drop one transmission, but I run them hard and do a lot of high speed interstate travel, often with a heavy load.
BUT, now I am stuck and don't know what to do next. GM after 2008 scares me, so I'm starting to think foreign cars. I need the size of the Deville, and nothing I know of really beats that ride...maybe a Lexus?
Want to think the deville has a northstar. Been pleased so far as it is getting 23.4 miles per gallon in city traffic. Have only used it when carrying my husband and have to admit it is a nice ride. Have to take a few minutes to read the manual as nothing is manual with this car. This car ironically has been now purhased 3 times with the intent to handle those that have temporary medical conditions. As I prefer a truck any day to a car, I must admit for what little I paid for it I have appreciated it more.
RE: How do they recover the losses on the loans?
There is another factor here. The lenders will not admit this, but I have friends that work in the auto loan biz. The Lenders only plan on sub-primers paying the 1st three payments. They collect as much as they can in fees (as the article states), then when the owner stops paying the lender repos the car and starts the process again. The Predatory Lenders have it down to a science. They have kill switches in the car. If they owner stops paying, they shutdown the vehicle and then send out the repo-person. They can flip cars rapidly and have the system working pretty good.
This should be illegal and I'm sure it will be one day.
I think it depends on the state, or maybe it's legal but the companies don't want the liability...either way this is nothing new, here in Michigan there was a shady dude named "mel farr" that owned ford dealerships. He is now broke, he was sued because of the shut offs as well as embezzling money, etc. etc.. etc...This was like 20 some years ago.
Here's a photo : http://i.ytimg.com/vi/h9y9v0G5VsE/hqdefault.jpg
Good riddance.
faux inflation, they dont dare lower the price of their cars, that would impact earnings which would lower their market cap, since they buying their own shares, by implication it lowers the value of the feds balance sheet since they loaned GM the money to buy their own shares. this is ultimately the feds plan to raise interest rates, or lower thecredit worthiness of the banks, they raise rates then rebate the money to the banks. if you like your asset values you can keep your asset values
"faux inflation, they dont dare lower the price of their cars,...
... if you like your asset values you can keep your asset values "
It is actually a really efficient was to directly inject debt/money geared at a really high implic interest rate.
The Institution issuing gets first/best uses of the debt/money injected via the loan origination.
I always mis-heared. What they really did say all along is gREEKovery.
For those who are confused, an LTV of over 100% at origination guarantees that the lender will suffer losses on the loan (absent some dramatic price bubble which sends car prices soaring in the coming years).
Shouldn't they be reporting DEFAULTs on these loans? There is no loss if the borrower is making payments. Making a loan over value does not "guarantee" a loss. There is only a loss if the borrower doesn't DELIVER ON HIS TRADING PROMISE.
You also have to ask "what value"? Every car I bought "devalued" at least 20% when I drove it off the lot. The lender lost nothing on my loan, though the instant I left the lot, the LTV was 125% (assuming 0% down ... which was never the case).
Since the cohort of these loans is 2014/2015 the answer is yes... in 2020, when they come due. Feel free to check back on the cumulative losses and loss severity of the loans then.
And yes, your point is accurate but the reality is that lenders understand perfectly well there is a huge default cycle coming so they are scrambling to lend out as much as possible now to collect interest payment because once the next crash claims, all the principal will be made whole by the taxpayers once again as usual. Hence the lax issuance "standards."
so they are scrambling to lend out as much as possible now to collect interest payment because once the next crash claims, all the principal will be made whole by the taxpayers once again as usual.
It's the international bankers' farming operation called the business cycle. A properly managed MOE would make this practice impossible.
Fuck the UAW
In my neighbourhood, everyone is driving a big posh 4 wheels drive or convertibles with lavish life styles, whereas I am driving pissy tiny little car with cash in my hand. When the SHTF, I will be eating all their lunches.
In addition to the bubble in student loans, car loans have been the only confirmation that the US consumer - that driver of 70% of the US economy - is still alive.
So true! Just teh student loan bubble by itself can be seen to employ a vast % of Americans. Either working inside the University bubble or being a student in the bubble. Taken together this employs millions upon millions of Americans, keeping them out of the private sector job markets. Where these is no place for either of them.
Car loans? You bet! I see McDonalds workers driving to work in cars I can't afford! OH YEAH! That bubble gonna blow up when "the Nigga" can't meet his payments on burger flippn wages.
What is the interest rate?
There is no money exchanged.
Compound interest on a $30,000.00 loan at 4% which is 4% above the cost of money to the dealer.
4% over 5 years is roughly $6,500.00.
Plus a markup of between 5% and 10% or higher for luxury cars and you have a nice infusion of cash before the car ever leaves the lot.
Repo and sell at higher interest rate for used car and the thing beats anything Wall Street has to offer on most stocks.
If and I emphasize IF,,, they are stacking unsold inventory around the country like the Tylers indicate they are then how in the hell is anyone making any money?