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Risky Loans Are 'Driving' US Auto Sales: 3 Charts

Tyler Durden's picture




 

To be sure, we’ve made no secret of our views on the state of the US auto market. 

This year, we’ve written extensively about the proliferation of subprime lending, worrisome trends in average loan terms, and, most recently, we noted the astounding fact that in Q4 2014, the average LTV for used vehicles hit 137%.

We presented what perhaps marked our most unequivocal statement to date on why the market looks dangerously frothy in “Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance.” In that post, the absurdities plaguing the US auto market were laid bare for all to see. Here’s a recap: 

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

It’s against this backdrop that we bring you the following three charts from BofAML’s H1 review of trends in the ABS market. As you’ll see, below, the move towards riskier lending is quite clear. 

First, note that auto ABS issuance is set to hit record highs in 2015.

Next, consider that the percentage of prime loans backing new supply is now at an all-time low. 

Finally, here’s a look at the percentage of new financing extended to non-prime borrowers. As BofAML observes, the prime segements are losing share.

 

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Sat, 07/11/2015 - 17:11 | 6300035 Arnold
Arnold's picture

Disturbing.

Hand me another beer cousin.

Sat, 07/11/2015 - 17:32 | 6300103 centerline
centerline's picture

And that post perfectly summed up my attitude over the last few years.  Minimalist poetry right there.  You sir, are awesome.

Sat, 07/11/2015 - 17:52 | 6300154 Arnold
Arnold's picture

You flatter me for no good reason, cuz.

 

 

Did you bring beer?

Sat, 07/11/2015 - 18:23 | 6300277 christiangustafson
christiangustafson's picture

I have some. IPAs OK?

Sat, 07/11/2015 - 21:15 | 6300868 Creepy A. Cracker
Creepy A. Cracker's picture

FREE GUBMINT SHIT!!!!!!

"Free!!!!"

(In the end gubmint - the few remaining who pay taxes - will pay for this.)

 

Sat, 07/11/2015 - 17:52 | 6300158 Berspankme
Berspankme's picture

A nation of imbeciles

Sun, 07/12/2015 - 08:38 | 6301748 JRobby
JRobby's picture

This is an old story at this point. And auto sales are slowing anyway. But they would have to since the demand side has not been addressed.

Sat, 07/11/2015 - 17:12 | 6300039 negative rates
negative rates's picture

Fook the auto companies and the not so horse they rode in on.

Sun, 07/12/2015 - 07:52 | 6301660 onthesquare
onthesquare's picture

news fact 2018.  

Banks now selling pre-owned vehicles.  Come on down to honest Bibi's pre-owned vehicle lot and see them give away govment subsidized vehicles.  

Please note: Cash or bit coin is the preferred payment method.  Loans can be arranged at a modest interest rate.

Sun, 07/12/2015 - 08:39 | 6301753 JRobby
JRobby's picture

Banks selling pre owned homes and buildings, pre owned vehicles, soon enough, pre owned people.

Sat, 07/11/2015 - 17:16 | 6300046 jimfcarroll
jimfcarroll's picture

Don't worry about it. Janet will buy the loans in the first days of QE4

Sat, 07/11/2015 - 17:20 | 6300062 disabledvet
disabledvet's picture

If the New York Stock Exchange cannot open come Monday...say..."for the rest of the week"...

that is all Jack Jew and Interplanet Janet actually.

Governor Huomo will be flaming out on Fire Island if that happens...

Sat, 07/11/2015 - 17:17 | 6300050 disabledvet
disabledvet's picture

Interesting to follow the prices of the all electric Nissan Leaf.

Pick up a used one for 7-8 grand.

Range might be only thirty miles but you'll never need gasoline again.

"Someone will slap a solar panel on there" at some point.

You'll never use gasoline again at that point.

They just increased the range on the new one by a third too...a hundred miles give or take.

Who drives more than a hundred miles a day?

Sat, 07/11/2015 - 17:25 | 6300076 disabledvet
disabledvet's picture

Putin ain't the only one popping the popcorn here.

"That range increase came as a surprise to the market."

The redesign comes out NEXT year.
"Then we'll be talking 180 miles" apparently.

Sat, 07/11/2015 - 17:36 | 6300122 wendigo
wendigo's picture

Meanwhile my truck will go 400 miles haluing a literal ton of cargo. 

Sat, 07/11/2015 - 21:17 | 6300879 Creepy A. Cracker
Creepy A. Cracker's picture

My truck will go 500 miles on 10 gallons of diesel.

(1981 diesel VW pickup)

Sat, 07/11/2015 - 17:27 | 6300080 wendigo
wendigo's picture

But why would you finance a new car? What's wrong with buying used? I don't understand. 

Sat, 07/11/2015 - 17:31 | 6300101 Arnold
Arnold's picture

lookit the financing length of used cars, in the article.

Sat, 07/11/2015 - 17:35 | 6300117 wendigo
wendigo's picture

I did. Why would you finance a used car? Every car I've ever bought, and there have been several, was bought for cash. Yes, that meant driving crap in my youth. I did it, anyone could.

 Financing a car makes zero economic sense, and yet people do it. It's something I will never understand. 

Sat, 07/11/2015 - 17:58 | 6300183 thamnosma
thamnosma's picture

Not really.  I financed a new vehicle at something like 1%.  I needed a reliable vehicle for my job and couldn't afford plopping down 25K cash.  It's paid for now and I'm getting my "free" years out of it now.

Sat, 07/11/2015 - 17:27 | 6300083 moneybots
moneybots's picture

"First, note that auto ABS issuance is set to hit record highs in 2015."

 

It won't be confined to subprime.

Sat, 07/11/2015 - 17:28 | 6300089 chunga
chunga's picture

I'd like to take a moment to bash the auto insurers. There's a commercial tthat shows some sap in front of the statue of liBerty complaing he "dropped 40k on a new set of wheels" then got totaled right away. Dude was mad InSuRance co. didn't pay for replacement because it depreciates overnight. He then goes on to tout some other awesome company that's better, but fails to ask why premiums never go down. DUH!   

Sat, 07/11/2015 - 17:40 | 6300131 Squid Viscous
Squid Viscous's picture

exactly, lost 15k when he drove off the lot, pure comedy anyone that buys a new car, financed or not

Sat, 07/11/2015 - 17:39 | 6300127 centerline
centerline's picture

And the number of people of who actually know how to work on cars, take care of them, and so forth hits a record low.

Works for me.  (well, at least until it all comes undone as a result of the massive stupidity.   hmmm... actually it might even work after the S hits the fan too considering skills and tools don't evaporate like government promises and bank money [unless we go mad max.  but... might work then too but would require war paint, chaps, and wierd baby head helmets and such which I suppose would be okay, just not my preferred style.  hmmm.]).

Sat, 07/11/2015 - 17:42 | 6300136 Bunghole
Bunghole's picture

I asked my former insurance agent what the parent company's annual budget was for advertising?

Silence was all I got.

I told him I wasnt supporting stupid fucking commercials geared at minions with sub 100 IQ's with my premiums and walked out the door.

Sat, 07/11/2015 - 20:01 | 6300498 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

What? You refuse take insurance advice from a cartoon duck? Very narrow minded of you Mr. Bunghole!

Sat, 07/11/2015 - 17:52 | 6300157 thamnosma
thamnosma's picture

I'm gonna start taking all these high risk loans.  What the hey?  I always wanted a Mustang Shelby GT with afterburners.  I mean if all those solar companies Obama gave millions to went kaput, I want my share.

Sat, 07/11/2015 - 17:56 | 6300175 Arnold
Arnold's picture

Why go so small? Imagine big and start small is not a bad philosophy.

 

 

http://www.complex.com/sports/2012/11/the-25-fastest-street-legal-cars/m...

Sat, 07/11/2015 - 18:01 | 6300187 thamnosma
thamnosma's picture

Damn, I'm gonna have to take out several loans.  Can I use the first car as collateral for the second and keep going from there?

Sat, 07/11/2015 - 19:31 | 6300552 foxmuldar
foxmuldar's picture

Till recently I has 21st Century Insurance. Before them I had Allstate, before them Geico. Back  in 2003 I had Geico and I hidroplaned my 2000 Chevy silverado so I used what I got back from Geico for my Chevy and bought a new 2003 Silverado.  Shortly after the accident, Geico started ramping up my six month payments. When your in any accident, the first thing other insurance companys ask is if you had any accidents within the past three years. So for three years I was stuck with Geico and finally after the three years were up, Allstate calls me and my six month premium went from $700 to $300. At that time I was happy with Allstate untill they started to do the same shit Geico did. When my policy went to $400 for six months, I switched to 21st Century. Well needless to say after a year or so, 21st started pulling the same shit. My last payment for six month was just over $300 and the new payment would have been $351.  I called 21st and gave them a chance to lower it but they gave that old excuse the state was raising rates. Well I call State farm and now my new payment for six months is $254. I have no doubt State Farm will be raising the rates in time and then I'll say byebye to them. Too many folks just look at the new payment and think there nothing they can do. I often get calls now from Allstate telling me how they can save me money by switching. Imagine had I stayed with Geico about eight or nine years ago. I'd be paying at least $1000 every six months. As they say, it pays to shop around.

Sat, 07/11/2015 - 20:01 | 6300668 db51
db51's picture

A $ 70K Suburban financed for 7 years will probably have 140K miles on it and be worth about $ 14K when it's all said in done.   and POOF!   it's gone!

Sat, 07/11/2015 - 20:27 | 6300753 lynnybee
lynnybee's picture

i've been driving since 1965.   back then we didn't even have car insurance on our vehicles, it was optional!  my dad looked at me & said, "this is a junk car, we're not getting insurance on it."   there were no safety belts in the cars, no air conditioning unless you wanted to pay more for the car, there were no power windows either; we rolled the windows down by hand.   and, when we parked the car behind the store we left the car keys in the ignition so we didn't lose them !!     & if we wore shorts, we stuck to the car seats in the summer.   and, gasoline was 17cents/gallon, paid for with two silver dimes.   AND, WE WERE ALL JUST FINE !   if we wrecked the car, we walked until we could save enough money to purchase another one.   

Sat, 07/11/2015 - 20:35 | 6300774 Omega_Man
Omega_Man's picture

May as well take two cars, it will be impossible to reposses them all. May as well give them away. 

Sat, 07/11/2015 - 21:44 | 6300934 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

I bought a 1981 GMC for $500.0, took the intake and carb off and replaced it with a 60s intake with no EGR valve or emissions spaghetti. I put an 850 Holly on, new battery, new tires all around, some primer n paint, and drove that truck for over a decade with no maintenance whatsoever after that except a tweak on the distributor. In the end, I cracked a head, and then the transmission started to go so I sold it for $80.0 to a wrecker.

 

cha-ching

Sat, 07/11/2015 - 23:34 | 6301193 brown_hornet
brown_hornet's picture

Mrs. Hornet works for Toyota Financial. Says almost all the loans they are making now are sub-prime. That's all that is trying to buy a new car. They still send a lot of people off to Santander and Capital One.

Sun, 07/12/2015 - 02:49 | 6301412 Consuelo
Consuelo's picture

The old man's house in 1969 - brand new, was $25k.   3 Bdrm, 2 bath, 1600 sq. ft.   Hard to believe the average price of an automobile today is that same price - who knows, perhaps more...   New cars back then I think were around $2500 - $5k.    For the people who had 'arrived', a 1969 Cadillac El Dorado put you back ~$7k.   Imagine that...

What happened to our $purchasing power...?   What is going to happen when 30+ years of the future-pulled-forward-consumption comes to an end...?

Sun, 07/12/2015 - 10:37 | 6302057 Rentier88
Rentier88's picture

Don't look at me I pay cash for my cars and only buy used 2 or 3 year old cars with very few miles on them 20k or less.  I let other suckers believe the new car myth and take the huge depreciation hit.

Sun, 07/12/2015 - 10:38 | 6302058 Rentier88
Rentier88's picture

Don't look at me I pay cash for my cars and only buy used 2 or 3 year old cars with very few miles on them 20k or less.  I let other suckers believe the new car myth and take the huge depreciation hit.

Sun, 07/12/2015 - 14:19 | 6302891 Arnold
Arnold's picture

worth saying twice.

Mon, 07/13/2015 - 00:41 | 6304755 onmail
onmail's picture

Debt is a (cabal) capitalists weapon.

They make common people in debt (actually deliberate subprime), then they declare themselves as bankrupt but TBTF then they ask govt. for free money (QE).

Debt has become a tool for easy money

(lots of it)

This is the result of blind faith in capitalism , which has degraded into CRONY CAPITALISM.

(Because they help politicians get elected with money contributions)

Govt. cannot ignore them, so who has to suffer?

The people

Is this what democracy has become?

Demoncracy? Mammoncracy?

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