The One Trillion Dollar Consumer Auto Loan Bubble Is Beginning To Burst

Tyler Durden's picture

Submitted by Michael Snyder via The Economic Collapse blog,

Do you remember the subprime mortgage meltdown from the last financial crisis?  Well, this time around we are facing a subprime auto loan meltdown.  In recent years, auto lenders have become more and more aggressive, and they have been increasingly willing to lend money to people that should not be borrowing money to buy a new vehicle under any circumstances.  Just like with subprime mortgages, this strategy seemed to pay off at first, but now economic reality is beginning to be felt in a major way.  Delinquency rates are up by double digit percentages, and major auto lenders are bracing for hundreds of millions of dollars of losses.  We are a nation that is absolutely drowning in debt, and we are most definitely going to reap what we have sown.

The size of this market is larger than you may imagine.  Earlier this year, the auto loan bubble surpassed the one trillion dollar mark for the first time ever

Americans are borrowing more than ever for new and used vehicles, and 30- and 60-day delinquency rates rose in the second quarter, according to the automotive arm of one of the nation’s largest credit bureaus.

 

The total balance of all outstanding auto loans reached $1.027 trillion between April 1 and June 30, the second consecutive quarter that it surpassed the $1-trillion mark, reports Experian Automotive.

The average size of an auto loan is also at a record high.  At $29,880, it is now just a shade under $30,000.

In order to try to help people afford the payments, auto lenders are now stretching loans out for six or even seven years.  At this point it is almost like getting a mortgage.

But even with those stretched out loans, the average monthly auto loan payment is now up to a record 499 dollars.

That is the average loan size.  To me, this is absolutely infuriating, because only a very small percentage of wealthy Americans are able to afford a $499 monthly payment on a single vehicle.

Many middle class American families are only bringing in three or four thousand dollars a month (before taxes).  How in the world do they think that they can afford a five hundred dollar monthly auto loan payment on just one vehicle?

Just like with subprime mortgages, people are being taken advantage of severely, and the end result is going to be catastrophic for the U.S. financial system.

Already, auto loan delinquencies are rising to very frightening levels.  In July, 60 day subprime loan delinquencies were up 13 percent on a month-over-month basis and were up 17 percent compared to the same month last year.

Prime delinquencies were up 12 percent on a month-over-month basis and were up 21 percent compared to the same month last year.

We have a huge crisis on our hands, and major auto lenders are setting aside massive amounts of cash in order to try to cover these losses.  The following comes from USA Today

In a quarterly filing with the Securities and Exchange Commission, Ford reported in the first half of this year it allowed $449 million for credit losses, a 34% increase from the first half of 2015.

 

General Motors reported in a similar filing that it set aside $864 million for credit losses in that same period of 2016, up 14% from a year earlier.

Meanwhile, other big corporations are also alarmed about the economic health of average U.S. consumers.  Just check out what Dollar General CEO Todd Vasos had to say about this just the other day

I know that when we look at globally the overall U.S. population, it seems like things are getting better. But when you really start breaking it down and you look at that core consumer that we serve on the lower economic scale that’s out there, that demographic, things have not gotten any better for her, and arguably, they’re worse. And they’re worse, because rents are accelerating, healthcare is accelerating on her at a very, very rapid clip.

The stock market may seem to be saying that everything is fine (for the moment), but the hard economic numbers are telling a completely different story.  What we are experiencing right now looks so similar to 2008, and this includes big institutions just dropping dead seemingly out of the blue.  On Tuesday, we learned that ITT Technical Institute is immediately shutting down and permanently closing all locations.  This is from a Los Angeles Times report

The company that operates the for-profit chain, one of the country’s largest, announced that it was permanently closing all its campuses nationwide. It blamed the shutdown on the recent move by the U.S. Education Department to ban ITT from enrolling new students who use federal financial aid.

 

“Two quarters ago there were rumors about the school having problems, but they told us that anyone who was already a student would be allowed to finish,” said Wiggins, who works as the assistant manager for a family-run auto parts business and went to ITT to open new opportunities.

 

“Am I angry?” he said. “I’m like angry times 10 million.”

As a result of this shutdown, 35,000 students are suddenly left out in the cold and approximately 8,000 employees have lost their jobs.

This is what happens during a major economic downturn.  Large institutions that may have been struggling under the surface for quite a while suddenly give up and drop a bomb on those that were depending on them.  In the months ahead, there will be a lot more examples of this.

Already, some of the biggest corporate names in America have been laying off thousands of workers in 2016.  Mass layoffs are usually an early warning sign that big trouble is ahead, so keep a close eye on those companies.

The pace of the economic decline has been a bit slower than many (including myself) originally anticipated, but without a doubt it has continued.

And it is undeniable that the stage is set for a crisis that will absolutely dwarf 2008.  Our national debt has nearly doubled since the beginning of the last crisis, corporate debt has doubled, student loan debt has crossed the trillion dollar mark, auto loan debt has crossed the trillion dollar mark, and total household debt has crossed the 12 trillion dollar mark.

We are living in the greatest debt bubble in world history, and there are signs that this giant bubble is now starting to burst.  And when it does, the pain is going to be greater than most people would dare to imagine.

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stitch-rock's picture

but, the students gotta get to college.....on the waaaambulance

DestinyL's picture

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doctor10's picture

There is a Chinese proverb that basically states that one should choose their enemy carefully-for in victory you may become them

The Western Banks no longer can charge any interest whatsoever. Essentially being transformed, in that regard into Sharia Banks-which are prohibited from usury-the charging of interest.

If one assumes that all warz are bankerz warz-it would appear that 15 years into "the War on Terror" that Sharia Banking has prevailed-whether the West wants to accept it or not.

That implies a massive multi-generational depression coming to the West -as our entire society was built upon the foundations of usury banking -which has been destroyed

Perimetr's picture

Hey I still have plenty of blank checks left in my checkbook

how can I be out of money?

Paul Kersey's picture

With Joe Sixpack living from paycheck to paycheck, and now four years into his upside down in value, eight year auto loan on his well appointed Ford F-150 pickup, it's probably time to drive the truck back to the dealership, leaving the keys and signed title in it, and ubering back to his 2bdr "luxury" apartment rental.  Me, I'm still driving my 1997 Ford Expedition.  Paid it off in 2000, and plan to drive it until it dies (unless I die first).

zeronetwork's picture

Car dealers need bailout too.

Stuck on Zero's picture

The country isn't drowning in debt. It's drowning in credit.

SafelyGraze's picture

former ITT tech students are trying to repudiate their loans

http://blog.debtcollective.org/student-pressure-pushes-itt-tech-to-the-b...

by filing "defense to repayment" and "closed school discharge" applications

in case you or your loved ones know anybody who was taking classes at ITT

 

Manthong's picture

I feel left out…

I own two SUV’s in great condition with low miles and I have not had a car payment for over 20 years.

Maybe I am not contributing to the economy.

bleu's picture
bleu (not verified) Manthong Sep 7, 2016 11:28 PM

The CURSE is relentless. http://wp.me/p4OZ4v-

glenlloyd's picture

A new car is the last thing I'm thinking about. I'm perfectly fine with what I have, not looking for anything new, not trying to keep up with the Joneses down the street who have massive amounts of debt.

No car payments no debt.

fbazzrea's picture

you're right, especially when their floorplan costs spike due to the credit bubble bursting, forcing a rediscovery of credit costs.

sales down. costs up. not a formula for success.

max2205's picture

No worries.  Janet will buy those bad loans at par

tom stamps's picture

Just print. When the stock market goes down, print! They won't allow another 2008 fiasco!

stitch-rock's picture

big dif (of both how and why) between payday lenders and a global fin-in.

liken the term 'interest-rate apparteid' to define the spread

 

 

Seek_Truth's picture

Vehicles are so immensely overpriced.

Bought a Ford Pickup at auction for $X", sold it for the same $dollars 5 years later- with many, many more miles.

Way too many examples to share right now.

PS- Buy off of Craigslist, or at Auction- but understand the "game."

Bob's picture

Copy that.  Cash for Clunkers dropped a world of pain on the bottom 30% and anybody else with the sense to not pay the insane prices for unnecessarily new vehicles.  Used parts prices even went through the roof.

GunnerySgtHartman's picture

C for C was a clunker in its own right.  I know people who traded in perfectly good cars just to save a few bucks in gas.  Talk about penny-wise and pound-foolish.

elmo jones's picture

User free banking is Christian, hundreds of years older than iSlum.

Mustafa Kemal's picture

I dont know if Sharia banking is zero interest. Technically yes, but they have a mechanism of part ownership thats much different than zero interest. Instead of interest, you pay rent from partial ownership.

pitz's picture

Sounds like equity to me.  You 'buy' the truck from the dealer, and the dealer gradually transfers the equity in the truck to you.  You pay rent on the portion of the equity that you do not own.  If you pay it all off, eventually you own the whole thing and don't have to pay rent. 

It actually sounds like a very desirable system, that the vendor needs to take some responsibility for their product working properly. 

Paul Kersey's picture

"The Western Banks no longer can charge any interest whatsoever."

No, western banks charge ungodly interest of 15% to 30% on credit cards and used cards. What western banks do is PAY no interest to savers.

Ace Ventura's picture

The difference here is that the little people are absolutely still being charged interest. The real 'no interest' stuff is a benefit only enjoyed by the banksters when they borrow from each other or the assorted 'accomodation/discount' windows provided to them by the FED.

Try and open a line of credit with any bank at 0% interest................

Food Loaf Junkie's picture

In Deetroit, that's pronounced "Bambuhlance"

Pie rre's picture

I imagine there are some that feel if they have no opportunities for work they might as well go to "school" on a grant even if the prospect of paying it off is questionable.  If you need a car with a no interest loan and a 7 year loan what the fuck. Maybe there'll be a Jubilee.

Butter-Cup's picture
Butter-Cup (not verified) stitch-rock Sep 8, 2016 1:49 AM

My last month paycheck was for 11000 dollars... All i did was simple online work from comfort at home for 3-4 hours/day that I got from this agency I discovered over the internet and they paid me for it 95 bucks every hour...  Try it yourself... http://www.14earnpath.com

King Tut's picture
King Tut (not verified) Sep 7, 2016 8:39 PM

Must...keep...stock...market...up...a...few...more...months

Dr.Evil's picture

No accountability on either side!

NoDebt's picture

If we were all as smart as we think we are we would probably realize this might be the ideal time to rack up HUGE debt because it's all going bye-bye soon anyway.  Buy gold with the borrowed money.  

 

Archive_file's picture

Is it possible to by physical with a credit card? I've noticed that bullionstar and other websites don't allow purchasing physical with a credit card? Help? What's a good, basic way to slowly leverage 1oz of physical gold? Thanks ZH.

BandGap's picture

Yep, for a slight premium.

 

Dragon HAwk's picture

APMEX will let you put a OZ of gold on your credit card,

Never One Roach's picture

APMEX charges th buyer who uses the credit card the same amount APMEX has to pay the cc company which is usualy about 3-3.5% from my understanding. They are super reliable whether you are buying or selling with them. My brother and father use them all the time, have been for years.

Ignorance is bliss's picture

When you default on the CC that's considered unsecured debt. You can keep the Gold / Silver Bullion. Sweeeeet.

Help Is Not Coming's picture

If you are in the US make sure to buy gold and silver eagles so that when you file for bankruptcy and have to sign a sworn statement about how much money you have in your possession you can lawfully claim the face value of all of your constitutional US money. One 1 oz silver eagle is one dollar. One 1 oz gold eagle is fifty dollars. One 1/2 oz gold eagle is twenty five dollars, etc.

fbazzrea's picture

The Canadian Maple Leaf and Austrian Philharmonic are also excluded from IRS 1099 Report filings.

pitz's picture

The creditors will see, in the credit card statements (presuming that you're trying to rip the credit card company off), all these precious metals purchases.  And act accordingly to require disclosure of one's precious metals.  So nice try, unless you're trying to attract a perjury charge in addition to bankrupcty fraud.

Agstacker's picture

LOL I'll have to remember that, thanks!

SoDamnMad's picture

So, with a straight face, you tell the bankruptcy judge you lost the gold in a boating accident.

GunnerySgtHartman's picture

APMEX is a great source for PMs, I've been buying from them for quite some time.

Ignorance is bliss's picture

APMEX, Gold Money, Provident, Gainesville Coins...all accept credit cards

Berspankme's picture

I used to buy on Apmex all the time with a card

TheSkipper1967's picture

I have an unsecured line of credit with my bank and a couple of credit cards.  I transfer money from the LOC to my checking and buy silver eages.  When I get to $2k-$3k on my LOC I use a balance transfer at 0% to one of my cards.  I then pay that off over the 12-15 month period or sooner and start again.  Keeps my interest payments in the low 1-2% range even with the balance transfer fee of 3%.  If things go to crap and I get laid off I can file bankrupcy on the credit card balances.  I still am paying child support and other expenses so can't buy silver & gold outright.

tarsubil's picture

Good luck with that. What this may be is simply the end of a credit cycle that is going to lead to deflation in the near term. In that case, you don't want debt.

The safest position is always no debt and investments with some in physical gold and silver.

photonsoflight's picture

I have to agree. The truly cheap and lazy avoids deb tike the plague. Who wants to be a slave?

 

Laziness can be a virtue, as in if helps to motivate one to do things right the first try.

truthalwayswinsout's picture

With deflation no debt and cash money are king.  Once deflation goes full steam $1000 cash today will buy that $50,000 car easy. Better yet that $1,000,000 home will go for $50,000 and those will be the deals of a lifetime.

Gold is absolutely the worst investment you can make in deflation.

We were in Houston in the early 80's when there was a massive depression in the oil markets. We were buying $120,000 homes for $15K and less. We were in the semiconductor industry and worked out of California and visited Houston for business and the entire office in California bought 46 homes.  We hired a real estate agent to rent them and all were sold within 3 years for $80k on average.

However, this time when the depression hits it will be nationwide and the goods will get cheaper and it will last much longer; probably 7-10 years. We will wait until things are 5 cents on the dollar to start buying.... and gold, it will be lucky to stay above $300.

Most important thing to do; if you are in debt just service it and save all the cash you can get your hands on NOW AND KEEP IT IN YOUR MATTRESS.  When everyone else defaults you default on your debt and buy the assets you need with any cash you saved.  Cash will be king.

Not My Real Name's picture

With deflation no debt and cash money are king. Gold is absolutely the worst investment you can make in delfation (sic).

WTF? You contradicted yourself.

Gold is money. Therefore, cash and gold both see increased purchasing power during deflationary times.

Crush the cube's picture

Yup, I'd rather the gold coin, because the politicos can render the paper worthless through continuing malfeasance, incompetence, and criminality.  And that is the current trend and road map of how we are now here.

Waiting patiently on my cheap slightly used shiny monster luxury truck, always wanted one, but ain't into paying for status.