Soaring Auto Loan Defaults: Fitch Says 2015 Bonds May Be Worst Ever

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com,

Bloomberg reports Subprime Auto Bonds From 2015 May End Up Worst Ever, Fitch Says. I suggest 2017 will be worse, but let’s tune into Fitch first.

Subprime auto bonds issued in 2015 are by one key measure on track to become the worst performing in the history of car-loan securitizations, according to Fitch Ratings.

 

This group of securities is experiencing cumulative net losses at a rate projected to reach 15 percent, which is higher even than for bonds in the 2007, Fitch analysts Hylton Heard and John Bella Jr. wrote in a report Thursday.

 

“The 2015 vintage has been prone to high loss severity from a weaker wholesale market and little-to-no equity in loan contracts at default due to extended-term lending, a trend which was not as apparent in the recessionary vintages,” said the analysts, referring to lenders’ stretching out repayment terms on subprime loans, sometimes to over six years, to lower borrowers’ monthly payment. That becomes riskier in the tail end of the loan, after the car has mostly depreciated and borrowers may be left owing large balances.

 

Credit-rating companies that assess the auto debt packaged into bonds have raised concerns in recent months about rising delinquencies and defaults. They note that additional pressures in the used-car market have weighed on lenders’ ability to recoup funds from borrowers who have their cars repossessed.

 

S&P Global Ratings, which rates a larger percentage of the markets than Fitch and Moody’s, has blamed the rising net loss rates on weaker recoveries. S&P noted this month that net losses on prime deals have reached a pace not seen since 2008.

2017 Will Be Worse

2017 will be even worse. This Automotive News story provides an easy to understand explanation: New-Car Loans Lasting 73 to 84 Months Soar.

In the first quarter of 2009, 11.7 percent of new-vehicle loans were 73 to 84 months, Karl Kruppa, senior automotive solutions consultant for Experian, said at CU Direct’s Drive ’17 conference here last week. Through February 2017, 33.8 percent of loans were 73 to 84 months.

 

Even within that bucket, term lengths are creeping up. In the fourth quarter of 2010, three-quarters of new-vehicle loans in the 73- to 84-month category were between 73 and 75 months, Kruppa said. “Now we are seeing more and more lenders willing to go all the way up to 84 months,” he said. In the fourth quarter of 2010, 17.1 percent of new-vehicle loans were 84 months. In the fourth quarter of 2016, 28.7 percent of new-vehicle loans were 84 months.

 

“You know what’s kind of startling?” Kruppa said. “There’s actually 10 percent of [2010 model-year] used vehicles being financed at a term between 73 and 84 months. Longer terms are here, and more and more lenders are willing to do that.”

Septuple Industry Whammy

  1. New car incentives are rising
  2. Used car glut with prices plunging
  3. Length of loans increasing
  4. Economy weakening
  5. Aging boomers will drive less, with cars already lasting longer
  6. With default rising risk, lenders will hike loan rates, reducing new car affordability despite increased incentives.
  7. Self-driving vehicles are right around the corner. Demand for cars without those features will plunge.

Other than those items (and anything else I may have missed) the auto industry is doing quite fine, thank you.

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NugginFuts's picture

I need this thing to collapse in about six months or so. Need a new SUV for the wife and kiddies.

Come on, crash, don't fail me now! Daddy is a cash-in-hand buyer!

Raffie's picture

Most SUV's are way over priced any how.

%50 discounts would be welcome.

ZeroIntelligence's picture

Not gonna happen - the vast majority of buyers only look at the monthly payment... As long as it's affordable each month, they don't care what the car costs.  Took me a long time to grasp this concept.

open calender's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Countrybunkererd's picture

Cell phone or car payment this month???  Will they choose to walk (into oncoming traffic looking at phone) or drive a car in a straight line (for once)?

It is the same with their multiple credit cards, mortgage or rent, and on and on.  One event from total chaos.  But hey, they have all the new stuff!

pods's picture

I'd say good. This financialization has fucked up the auto market. Prices of used cars stay high due to cheap credit. Just like happened to housing and college education.

Wherever this funny money flows, distortion follows.

Crash it all and let price discovery happen once again, instead of "what kind of payment you looking for" being the most used phrase on car lots.

Used car prices are way out of whack. Especially the prices of the Taco Trd that I am looking to pick up as a beach buggy.

pods

SmedleyButlersGhost's picture

If it's post crash - you might consider a second hand MRAP instead

JRobby's picture

Long repo men & ammo. The feuds will be epic! Roll tape!

JRobby's picture

Mid - Fall

Right after the monetary collapse

HedgeJunkie's picture

I love being in the same position, cash in hand, able to buy if I wish. But I don't wish. I'm just going to enjoy the show.

ChargingHandle's picture

You sure bro? If you have a pulse you can get 0% for 120 months probably. Hahaha

JedClampIt's picture

Don't forget about millennials who don't own cars but take Uber whenever they need a ride

Bernie Madolf's picture

Debt on rapidly depreciating assets is a wonderful idiot test.

Apparently, there are a plethora of idiots abound.

Maybe bundling used auto loans with opiod prescriptions is coming soon

Bam_Man's picture

I think that is already happening.

The average sub-prime vehicle loan has an LTV of 115%-145%. They are not only borrowing 100% of the cost of the vehicle at interest rates as high as 25%, but also the money to pay for insurance, gas, maintenance and repairs. Do you think the borrower actually puts that money aside and doesn't touch it until the vehicle needs new tires, brakes, etc.? Probably not. More than likely spent on booze, cigarettes, drugs, etc. Then when the vehicle does need a repair or maintenance, "Ooops!", and the loan goes into default, due to a large, "unexpected" expense.

GhostofBastiat's picture

Don't forget the Direct TV/PPV/Football package and the Tatoo sleeves/Piercings, etc that are required.

Repair prices for late model vehicles are usury to begin with, and higher yet at the stealership with OE parts heavily marked up.

The vehicles since 2000 (for the most part) are designed to fail within 200K miles, and to cost a shitload to maintain after 120K.  

Just like chinese crap from walmart, just throw away after use...Tires, brakes, and oil changes an unexpected expense?  Cars get turned in with that stuff used up mostly, and are passed off as reconditioning costs, as the person trading in rolls their negative equity into the new vehicle...

Rainman's picture

Best news of all, auto shit paper is embedded in every yield horny fund throughout the globe.

Winston Churchill's picture

Just like those RMBS bonds.There were only around $1.5 tn, but with all the rehypothacation,cds etc

it took $20tn to bail out.Not like the banks would do that again after all those stiff jail sentences....

Oh  shit.

schrock's picture

Yellen and his scum must make more debt slaves or the whole ponzi collapses. I keep reading about how vehicle prices are set to collapse, but I have yet to find a good deal. Has anyone seen prices drop on used vehicles lately?

mrdenis's picture

No I've been looking for a truck for 2 years now the've come a little off the top but not much .44K for a truck I just won't do ,can't find any good used two or three YO without over 100K on it ..

Crypto-World-Order's picture

I like that year ford fusions

aliens is here's picture

Don't give car makers any ideas on how cars last longer now. They'll find a way to make their cars undriveable in soon after you paid your loan off.

Temporalist's picture

Onstar...how can I wreck you?

peopledontwanttruth's picture

Almost there now. Next door neighbor has an 18 month old new GM, had 4 recalls so far and has broke down 3 times.

Keeping us on the commercial treadmill with everything made to fall apart. Bring the old stuff back

Temporalist's picture

So...everyone should take out a loan now before it all collapses and doesnt have to repay (just like stoodint lawns). Always wanted a dune buggy.

youngman's picture

and the people that sold them made millions.....and the people that bought them think they are stars in the investing world for getting such a huge interest payment....lol...we are that stupid....other peoples money is easy to spend

sirsmokum's picture

Self-driving vehicles are right around the corner. Demand for cars without those features will plunge.

 

WRONG!

Mr.BlingBling's picture

The reason I think you're wrong, and self-driving cars will be in huge demand, is the cost of insurance.

If we had legislators that represented us instead of the corporate-kleptocracy, they'd interfere in the market--heresy, I know--on our behalf to cap the delta between insurance premiums for traditional autos vs. self-driving autos.  But since the object of government is control, that won't happen.

(Perhaps such a cap could be limited to those who haven't been at fault in an accident.) 

Just my 2¢ . . .

ZeroIntelligence's picture

Who is at fault in the event of a self-driving car crash?  The car company?  The navigation software writer?  The guidance system manufacturer?  The GPS company?  The owner of the car?  The car dealer?  As far as I know this question has no discrete answer as of yet...

CRM114's picture

If there is to be any effective progress, then the liability must lie where the fault occured. Fat chance of that. GM ignition switches spring to mind.

Mary Barra, GM CEO, got away with blaming the over 100 needless deaths on company culture at the time. Government and the MSM conveniently didn't ask who was responsible for company culture at the time. Which would have been the VP for HR. Which was....you've guessed it, Mary Barra. Of course, they could have blamed the VP global product development from a few years before that, who pushed modifying components to save pennies at the future expense of lives. Which would have been...Mary Barra.

rejected's picture

Safety in a self driving car is like security in a Windows operating system.

Both are claimed, neither is true.

CRM114's picture

90% of Canadian roads are unusable by self-driving vehicles for at least 6 months of the year. They are screwed by snowbanks, potholes, branches from storms, dirt roads, temporary diversions, escaped livestock, etc. The cost to upgrade all the above so autonomous vehicles can cope would be astronomical. The Government can't afford to fix the potholes properly as it is.

Public transport? very funny. Do you do stand-up also?

The nearest Uber car is 13 hours away.

peopledontwanttruth's picture

So are Pennsylvania roads at that same rate for many of the same reasons. We have the worst roads in the country.

Pothole City Everywhere

NIRP Diggler's picture

I see no reason why the owner of a self driving car should be required to buy insurance.  Seems to me a colision is the manufacturers' fault.

silverer's picture

Ah, I don't believe it.  Everything is fine.  Economy is fine.  Treasury is full of money. Stock market is great.  Tesla will sell huge amounts of cars, millenials will save the earth, food will be healthy, wars will stop, protestors will eat ice cream, Russia's our new friend, men will cook and do the laundry, and in five years have the babies.  Yep, all good.  Oh, and everyone will have a great job.  amen

Ajax_USB_Port_Repair_Service_'s picture

If you've got money in a bank, you're financing these idiots.

buzzsaw99's picture

pension and insurance muppets likely hold the worst of them.  banks prefer to hold 60 month or less prime loans with down payment.

buzzsaw99's picture

i haven't heard about any lawsuits or loss of appetite regarding those loan instruments.  this will continue until somebody says "enough".  still waiting for evidence of that aspect.

Herdee's picture

Everybody is approved,good credit or bad, nobody walks away, you are instantly guaranteed to drive away.

GunnerySgtHartman's picture

In the fourth quarter of 2016, 28.7 percent of new-vehicle loans were 84 months.

W. T. F.

MrSteve's picture

As if the paint would even stay on that long! Seven years.  And, given the long salt soak, pothole rim dents and debris dings, why it would hold value like a straw hat blown into a hog pen.

Seasmoke's picture

They are counting on people who paid their car payments and not their mortgages in 2008, doing the same this time. I wouldn't bet on that.

CRM114's picture

Main Sign outside the recently opened used car dealer has "Credit For Everyone" in the same size letters as the owner's name.

I wouldn't trust some people round here with the price of a double-double. They're lovely folk, but can't figure finance beyond what they can work out on their fingers...and they wear mittens for 3 months of the year.

rejected's picture

Amazing,,,  people think they have the money to pay on a car for 7 years but don't have the money to save and buy that car outright in 4-5 years or less.

16 year scool system lobotomy?

Offthebeach's picture

College,  it's what plants crave.

wmbz's picture

"Self-driving vehicles are right around the corner. Demand for cars without those features will plunge".

For everyone but me, I will never ride in a self driving vehicle.  Screw that, even though I know computers never fuck up.

Anderson Coopers Gerbil's picture

The sweet spot is a 3 year old  Jap car

MrSteve's picture

Show me the spreadsheet with critical mass imploding on these deals. Is that too much quant to request? Show me the spreadsheet of one loan for each year, 2010 to 2017, and when the cookie crumbles in each range of dates. Really, it is a simple request!