Auto Loan Rejection Rate Falls To Lowest Level On Record

Tyler Durden's picture

If you were interested in learning about the conditions that conspired to create the great American housing bubble which burst in spectacular fashion in 2008 and brought the entire global financial system to its knees, you might start by reading the history of Fannie and Freddie, or you might take a hard look at Blythe Masters and the wizards who created the credit default swap, or, if you wanted to save yourself quite a bit of time and effort, you could just look at the current market for subprime auto loans. 

You see, the much maligned "originate to sell" model - which was instrumental in making the American homeownership dream a reality for underqualified borrowers in the lead up to the crisis - is alive and well and is 'in the driver’s seat' so to speak when it comes to auto sales in America. 

As we noted last month, in the consumer ABS space (which encompasses paper backed by student loans, credit cards, equipment, auto loans, and other, more esoteric types of consumer credit) auto loan-backed issuance accounts for half of the market and a quarter of auto ABS is backed by loans to subprime borrowers.

The push to feed the securitization machine begets more competition among lenders for a shrinking pool of creditworthy borrowers and when that pool dries up, well, the definition of "creditworthy" must necessarily be relaxed, otherwise the securitization machine stalls for lack of fuel. For those who missed it, here are three charts which tell you everything you need to know about the market for auto loan-backed ABS:

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.

Now, the NY Fed is out with what is perhaps the most shocking statistic yet (with the possible exception of the 137% average LTV ratio we highlighted earlier this month) on auto loans in America.

As the following graphic shows, the rejection rate for auto loans was just 3.3% in June - the lowest on record:

And here's Bloomberg's take on why virtually anyone who wants a car, gets a car:

One reason for the looser credit has been the renewed appetite for securities backed by automobile debt, including to the riskiest borrowers, with subprime loans feeding about $13.2 billion of bond sales on Wall Street this year, according to data compiled by Bloomberg.

Finally, to drive the point home, we'll leave you with a set of statistics which speaks volumes about why this will certainly not end well.

Q1 data from Experian:

  • 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.

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Stuck on Zero's picture

I'm rushing right out to buy me a Maserati with a loan from Sam's Fog-a-Mirror Auto loan.

Zero Point's picture

Fog a mirror? Damn, that sounds almost like discrimination.

knukles's picture

Smartest inner city bro I know once said; "Why gets me a loan when I can just takes it?"

(I'm sorry Tyler, but I couldn't resist.  I know, I know, so I'll add it to my tenth step tonight, ok?)

Headbanger's picture

Oh Lord, won't you buy me a Mercedes Benz..

Divine Wind's picture

 

 

 

I simply can not fathom taking on ANY debt right now. Certainly not something that will
hang around my neck for 5+ years.

Nope.

I will happily lay out 5-7K for a quality used vehicle and drive it till the wheels fall off.

johngaltfla's picture

Awesome. My cat needs a new Ferrari. Good time to sign her up.

Consuelo's picture

And You, dear Terracotta brother, are a wise man indeed.

 

Hugh G Rection's picture

No thanks. 

Paid cash for my used Lincoln 7 years ago and it's still running fine.  If I'm trying to get pussy I can always rent something stupid for a tinder date.

MontgomeryScott's picture

'I'm rushing right out to buy me a Maserati with a loan from Sam's Fog-a-Mirror Auto loan.'

"Sign here, please... OH! Thank you Mr., um, 'X'! Do you happen, by chance, to speak English? NO? Well, that's all right. Our loan department has you pre-approved..."

Well, I'll just keep driving my Cummins-equipped truck with a quarter-million miles on it, and pretend that my FACE is a Maserati.

It fools the girls.

DAMN. That's a FAST ONE. Damn thing's TURBOCHARGED!

NoDecaf's picture

What about Lear Jets? Can I get a loan for one of those?

booboo's picture

Yes, just get smoldering hole insurance.

eric89074's picture

Would love a new car but mine still runs fine and has been paid off since 2008.

Stuck on Zero's picture

Paid cash for my used Jeep in 2000 and it's still running fine. No plans to change.

Dixie Flatline's picture
Dixie Flatline (not verified) Jul 15, 2015 4:24 PM

I got a 84 month loan on my Chevy Spark!

starman's picture

Your hybrid all terrain vehicle just became your house!  

Its the American dream after all ! 

Rainman's picture

great .... a nation full of deadbeats rollin some $50k wheels one outrageous payment at a time. Bullish exceptionalism at it's finest...!

847328_3527's picture

Luckily, all these crooks are behind bars now.

 

 

... oh, wait a sec....

Seasmoke's picture

YOU GET A CAR. AND YOU GET A CAR. AND YOU. AND YOU. AND YOU !!!

Yen Cross's picture

   'We "Be" Cars and Shit', is having a public auction this weekend. Lamborghini, Ferrari, Masserati, Jaguar, BMW, MBZ...

* Bad credit no credit, no problemo'. 

 Just bring mugshot and ICE release papers for entry.

richiebaby's picture

This is a bunch of crap! I've been trying to get a loan on my 76 Buick Skylark and I have been turned down every time!

booboo's picture

mmm, new car smell, it's intoxicating, it has that "I gotta have this NOW!" scent to it, then gramps gets in in and sharts in his diaper or the kid blows chunks on the toll road and you can't pull off.

 

itstippy's picture

As an old fart, I recall the days when General Motors lost money building cars but made so much money through their GMAC auto loan finance arm that they were overall quite profitable.  The situation went on for several years.  United Auto Workers union negotiated hefty raises based on GM's profitability even though the auto manufacturing plants were bleeding money. 

Caleb Abell's picture

That's true, but thankfully, in the years since January 1981, Saint Ronnie and America have put those dirty, filthy, greedy unions in their place.  And now, the ex-union people who used to build cars in the paradise of modern day Detroit are basking in the warm glow of free market capitalism.  

God bless GM, and God bless the good old USA.

B2u's picture

Can I get free health insurance and an Obama phone too?  How about a nuclear device?

MontgomeryScott's picture

Yes on EVERYTHING, but ONLY if you are not from IRAN. We don't want to piss off Bibi.

I'll have Lindsay Graham's staff get in touch with you. Just be careful not to touch Lindsay Graham's 'staff', though (you don't know where it's; um, I mean, they've been).

Sincerely,

Acting President of CONUS (Valerie Jarrett)

     cc:

     Wookie

     Barry

     Billary

     Jeb

     Madame President Yellen

 

cowdiddly's picture

Im calling  BS on the bottom chart 72% of car buyers are not prime credit if 56% of all Americans now have subprime credit  put the chart up by credit score. And what the heck was wrong with the 3 percent that was turned down, Lepers whose fingers fall off at signing?

FreeShitter's picture

Neighbor buys a chevy sonic lol with a 72 month car loan....daughter tbones it with no collision insurance, #murica.

MontgomeryScott's picture

GOVERNMENT MOTORS named a car after a fucking cartoon character in a video game.

HOLY SHIT!

#murica. FUCK YEAH!

I've seen one of these on the road. Who the fuck makes it, DAEWOO?

I suppose that G.M.'s lender will try to reposses it now (due to 'breach of contract' for not having 'full coverage insurance').

Maybe dad can sue the hospital for delivering a stupid daughter. He'll lose, though. Back then he wasn't required to carry 'full coverage' OBAMACARE, so they'll have an EASY OUT.

buzzsaw99's picture

coffee is for closers

lasvegaspersona's picture

With a 30 year auto loan I'd consider a new Rolls...seriously...I'll be deadand the car will be worthless as a dollar...but I think I could handle most of the payments.

 

oops...just ran the numbers and even at 0% I still can't afford it...

Consuelo's picture

Why is it when I see the name, 'Blythe Masters', I think of pirates and 'Mutiny on the Bounty' themes...?

"Tie that scurvy dog to the yard arm - arrrrrrrrhhh..."

 

 

SmilinJoeFizzion's picture

 I'll take out a student loan as downpayment on a used Chevy Volt? Its the "millenial" thing to do.

Yen Cross's picture

  Here's an interesting piece on the "channel stuffed" subprime auto loan business. Tyler has covered it in depth.

  Nevertheless, Santander Consumer USA had little trouble last week finding buyers for its latest bond deal made up of auto loans to borrowers with deeply tarnished credit.

 Many Buyers for Subprime Auto Loan Bundle - The New York Times

 Here's your direct link to a "subprime" auto loan.

 Santander Consumer USA | Car Loans and Auto Refinance

fowlerja's picture

Yeah...but can I get a new car loan if I put on my application that I am from Greece...

MontgomeryScott's picture

Only if you want a full 'lube job'.

See, we have to put your car up on the rack, and GREASE the ZIRCS... and check the muffler bearings, and rotate the air in your tires, and fill your blinker fluid, and 35 other 'important checks'.

(Some additional fees may/will apply. See your local Rothschild central banker for details. Offer not good in Cuba, Yemen, or Syria. People who come in for this service wearing 'Anonymous' masks will be shot on sight. MAJOR credit cards accepted. MINOR credit cards get the special 'BUM RUSH' service; where we prepare you to accept several different Rothschild-shaped phallic symbols via a rainbow-colored, scented fluid being forced into cracks and crevices that your car never understood it 'needed'. Pre-register at ww,imsofuckedithurts dot com.)

 

venturen's picture

I just took our a 3rd car equity loan. I am going to go our in a blaze of debt. Why should I let the big boys be the only ones to default. Good luck collecting on a car with 3 loans