Auto Bubble Burst Begins As Subprime Delinquencies Soar To 2009 Levels

Tyler Durden's picture

For months we've argued that record auto sales have been propped up by low interest rates, a perpetual loosening of auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments. 

That said, with rates recently on the rise and a flood of lease returns driving down used cars prices (see "Record High Lease Returns Set To Wreak Havoc On Used Car Prices"), the tailwinds that have propelling auto sales to record highs over the past several months look set to change course.

Certainly, a quick look at the 61+ day delinquencies in General Motors' subprime securitization book would seem support our rather negative thesis on future auto sales with January 2017 delinquency rates soaring to the highest levels since late 2009 / early 2010.



Meanwhile, looking at GM's subprime data going back to 2001 implies that historical spikes in 2-month delinquency rates is a fairly decent indicator that all is not well.



Moreover, as the Financial Times pointed out today, it's not just subprime borrowers that are having problems making their monthly auto payments.  According to data pulled from Transunion, more than 1 million U.S. auto borrowers, subprime and otherwise, were behind on their payments as of Q4 2016 as overall delinquency rates also soared to 2009 levels.

More than a million US consumers have fallen at least two months behind on car loan repayments as the delinquency rate reaches its highest level since 2009, in the latest sign of stress in the $1.1tn market.


The proportion of soured car loans showed a 13 per cent increase to 1.44 per cent in 2016, according to data published on Thursday by TransUnion, the US credit bureau with an anonymised database of 220m consumers.


The rise in bad loans comes despite persistently low borrowing costs and unemployment levels — suggesting lenders may be letting consumers take on bigger debt burdens than they can handle. Lending to consumers with weak credit scores has been one of the fastest growing parts of the industry.



Though warning signs have been evident for some time now, at least to us anyway, lenders are just now starting to dial back their subprime exposures.

Nancy Bush, an analyst at NAB Research, said: “Auto lending was so hot for a while. It’s almost inevitable the credit quality would be stretched.


“Investors have tended to worry less than they should about banks going out on a limb with credit quality, just because we haven’t seen the evidence up until the last few quarters.”


Across the industry, subprime car loan originations fell 3 per cent in the third quarter from a year ago. In contrast, so-called prime plus and super prime originations rose.


“This is at a period where we, as an industry, should stay disciplined,” Dean Athanasia, co-head of consumer banking at Bank of America, told an investor conference last week.


“You got to watch credit. You got to make sure we’re not diving too deep into the lower end,” he added.

And while underwriters of auto loans will undoubtedly reassure investors that subprime auto securitizations performed relatively well, even at the height of the 2009 'great recession', we would note that borrowers have never been so underwater of their cars as they are right now.



Losses are never possible on those highly-engineered, complex wall street structures...until they are.

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LawsofPhysics's picture

I believe that this is in fact the highest since Lehman...

1980XLS's picture

Auto re-pos take only weeks.

Forclosures take months or years.

If they're not paying Car loans, things could get ugly

Raffie's picture

My brother's co-worker FINALLY got kicked out of his house after 6 years of never paying the mortgage.

Then he turns around and rents big house. I don't understand, his credit rating should look like a big smoking crater.

Bay of Pigs's picture

My buddy in Seattle told me the other day that the refu market is completely dead. As in no deals. He sounded worried.

Housing market is on the ropes again.

youarelost's picture

I concur but it is dead nationally.  I know of one mort company banking on just loan servicing over the next 5 years.


Have a good night

Raffie's picture

I'd go to Seattle for work, BUT the cost of living is way to high and housing is over priced.

I know people making $28hr and hardly have any money left to save after paying rent, food and the basics.

new game's picture

i work the dealer auctions and i can tell as a matter of fact there are a sea of lease returns flooding the lot. camrys as far as the eye can see. no shit maynard. it was first hyundais, ford(dedecated lane), mazdas, nissans, fucking crazy...all late models. not to mention the normal program cars and rentals. skad zooks of cars hitting the dealer wholesale level. plenty of repos. all this coming into a declining market. some great buys are coming. hold off for a few months is all i can say...

Wahooo's picture

Damn' I'd like to see one of those lots. Camrys as far as you can see? I know the are stodgy and boring but they're good for 250-300K miles. What do you think they'll be selling for?

Oliver Klozoff's picture


Since it's story telling night I knew a guy who talked his boss into loaning him a co. suv and trailer to haul back a car from halfway across the country. Co. paid for gas too, $3/gal at the time. YMMV but gas is incredibly cheap now, we should all rejoice by using as much as possible. There will never be another time like this. No sarc

Peterman333's picture

Agreed, they're fantastic cars but the clowns will still want too much for them. I did a search on autotrader yesterday, seems like they had tons of Nissans off lease including Nissan leaf.. how about an all battery car. lol

Giant Meteor's picture

Well, what immediately comes to mind, in these, the days of our lives, debt score of a big smoking crater is right around the national average. And fuck, we're just gettin warmed up!

1980XLS's picture

He prolly saved up alot of rent money after 6 years.

Time for an Upgrade!

Raffie's picture

He is a total POS.

He gambles, barrows money from his mom telling her lies while him and his wife think up new scams.

They adopted 6 kids and do nothing and let the kids raise themselves.

His thought is screw everyone, as long as he gets a free ride does not care.

He said this... I was like WTF?

Yet, America has to many people like this cancer that needs to be removed.

1980XLS's picture


But I don't cry for  banksters getting hosed by people.

It's a dog eat dog world.

TxExPat's picture

Cash talks.  After 6 years of living with no mortage, he might have some cash... 

"yea I'll rent to you, but you gotta pay upfront"...   "no problem"...



Raffie's picture

And the economy goes B00M.

BigFatUglyBubble's picture

AHhh, like popping bubble-wrap.  So satisfying to see the mirage disperse. 

Giant Meteor's picture

Ain't it tho? I suppose it was inevitable, 7 year 0% down loans. Taxs and tags extra, mileage? Shit, we're out of gas!

BigFatUglyBubble's picture

I was born in the early 80's.  I grew up in this greenspan/bernanke/yellen monster bubble that has been festering and augmenting for decades.  I've only lived in loose money environments.  It's kind of wild when you think about it.  It's time to take off the band-aid, and see how deep and infected the wound really is. 

Escrava Isaura's picture

Stage 4 cancer because it’s worldwide.

Keep the band-aid on…………………..please.


BigFatUglyBubble's picture

We will never get out of this hole

Untill we dig our own grave

and drag the rest down with us



Mustafa Kemal's picture

" It's time to take off the band-aid, and see how deep and infected the wound really is. "

No,no, no,  Doooonnnnnt!

Ink Pusher's picture

ha ha, I have a similar analogy which includes a smiley faced band-aid being placed on a gushing arterial wound and actually thinking the patient isn't going to bleed out in the street before actual help arrives.


stant's picture

Who hoo might get a cheap truck ! To bad they are almost useless as shit to work out of without a step ladder

cowdiddly's picture

No man. Jew got to make dat Cheby ride low to da groun man. Sos you don't have to reach so far to pull da onions.


Osmium's picture

I wouldn't buy a re-po vehicle,  Not even rental cars get beat as hard as a vehicle that the owner knows will be repossessed

atomp's picture

if they can't afford the payment, their not going to bother with the maintenance either.

peippe's picture

you want a van with a rack, 

unless you're three-tab roofing.

Rich Monk's picture

$40,000 - $50,000 trucks with 7 year loans? Americans are drowning in debt of their own making. I just can't feel sorry for fools.

Giant Meteor's picture

Yeah, but you gotta admit, they're more fun than tulips, until of course the repo man cometh ...

steelhead23's picture

I assume you are referencing the Dutch tulip bubble almost 400 years ago.  Truly, man does not learn.  But speculating on tulips would make a lot more sense thanspeculating on automobiles as automobiles never have and never will appreciate in value over time (OK, Deusenberg's excepted).

Giant Meteor's picture

The very same. I saw and retell a story of an old guy who was sold a large vehicle, a 4 door touring sedan (boat) by a "good" salesman some years ago. Problem is, it was not the car the gentleman really wanted, too much car for him and the missus was the story. So anyway, he was over on his right of rescission by a day I believe. Realizing his mistake, he comes to the dealership, and wants the dealer to "buy", take the car back.

Well shit, everyone in the place knew why he was there at this point, (that kind of news travels fast.) Well you can pretty much figure out the rest of the story. New car, no miles, clean as the showroom floor, just bought. After being awkwardly ignored for the appropriate amount of time, the tower man comes by to give him the bad news .. 

Yeah, depreciation and all, (unlike the dollar, /s) ...

Thought the old geezer was gonna stroke out right there on the showroom floor ... 

No joy ..

aardvarkk's picture

I'm driving around a 14-year-old piece of crap.  When it falls to rusty pieces, I will scrape them together in a pile and drive *that* around for a few thousand more miles.  They will NOT get me to bite on their shit deals.  I've owned exactly 2 cars over the last 20 years, and bought both (lightly) used at a huge discount.  People who buy brand new (or worse, lease) are morons.  I haven't had a car payment since 1995 or so.

frank further's picture

I haven't had a car payment since 1967.  And I've bought nothing but new cars and trucks.  Guess I had a better job.

Oliver Klozoff's picture

Know a guy who, just today, turned in a new GM ext. cab lease for a brand new GM crew cab truck with no cash layout and no increase in mo. payment. Insurance(where they really screw us) went up. Got opt. running boards too. Trick was, he said, to turn in the vehicle before the lease was up and miles reached. He likes driving new.

My cars never get resold but once the components in the dash fail, it's time for a new one. PITA

Peterman333's picture

I'm driving a scion toaster, everyone around me has new vehicles, you drive around herre and it's Audi, BM, Huge Dodge Ram, Toyota Tundra, all new within the last couple of years. They look sadly at the forlorn man in his sad vehicle. I smile back at them having not had a payment in years and rock bottom insurance. Cost of ownership? A new tire here and there, an oil change here and there.

Ink Pusher's picture

And this is only GM's shit list, add Ford, Dodge and everyone else to the list and then add all the defaults from all of the independents and guess what, the bubble must have already burst on a grand yet unpublished scale sometime last November.




1980XLS's picture

Car companies themselves are not holding alot of the paper.

If you listened to Jamie (scumbag) Dimon over the last few years, you would have heard that people are paying their car loans as a priority over many others.

Ink Pusher's picture

I am aware of that, but regardless of who is holding it, it ain't being paid.

All the junk will stil be sold and the poor clueless bastards that end up with it in their portfolios will be the ones who pay the piper when the bubble "officially" goes POP!

Getting a car loan is like getting married to a filthy little whore who loves you for your money and when you run out of "love" she moves on to the next sucker who is willing to be married leaving you with added fines and penalties for the next 3 to 5 years...

Vinividivinci's picture

Burger flippers and dishwashers need their 35 thousand dollar cars...

BigFatUglyBubble's picture

Chicks dig burger flippers that drive tinted out beamers.

hotrod's picture

I wonder how many new immigrants got put into a brand new Chevy that is now a bit heavy.  I mean that was the idea behind open borders right.  More people more commerce.  No one thinks about all the costs to subsidize them cause that's on the tax payer.  An immigrant making minimum wage uses up a whole lot more health Care than he adds to the economy. Gonna have 3-4 kids too.

CHoward's picture

Bubble?  So what?  No one EVER explains WHAT HAPPENS when the proverbial bubble bursts!!!!  Can I expect to see dead bodies laying all over the place??????

Chippewa Partners's picture

Bubble bursting?    How could that happen?  This is all doom porn...................until it isn't.

Sonny Brakes's picture

My second hand 2008 Toyota Corolla c/w 240,000 kilometres is paid for and will probably be the last car I'll ever own if I can help it. Personal automobiles are parked approaching 100% of the time. Has anyone considered the roads upon which we drive ruin automobiles? Has anyone considered the amount of space a car consumes? It's idiotic. All those gas stations, all those garages, all the parking lots, roads, bridges, tolls, etc. We work to keep ourselves in debt to a piece of steel. We're lunatics.