Carmageddon: Deep Subprime Auto Delinquencies Spike To 10-Year Highs

Tyler Durden's picture

If you're still on the fence about whether the auto market in this country is anything but a massive bubble being propped up by extremely loose credit underwriting standards, then we think Equifax has just provided some definitive evidence that just might push you over the edge. 

In discussing delinquency trends in deep subprime auto ABS deals, Equifax Chief Economist Amy Crews Cutts recently pointed out that 2016 and 2017 vintage deals are mysteriously performing more like 2007 securitizations than those underwritten in 2010. 

Here's more from Bloomberg:

“Performance of recent deep subprime vintages is awful,” Equifax said in a slide show on second-quarter credit trends.

 

“We’re seeing an increase in delinquencies across all credit scores, but in the highest credit quality, it’s just a basis point or two,” Chief Economist Amy Crews Cutts said in an email Tuesday. “In deep subprime, the rise is more substantial. What stood out to me was the issuers. Those that have been doing this for a decade or more were showing the ‘better’ performance, while those that were relative newcomers were in the ‘worse’ category.”

 

And while we can't be sure, we're going to go out on a limb and suggest that the soaring delinquency rates of 2016/2017 vintage deals might just have something to do with promotions like the following one that literally offers a $1,500 discount to people with "Low Credit Scores."  And, lest you think this is a joke, here is the fine print on the promotion:

"April 2017 Pricing on all new vehicles may include up to $1500 in finance rebates that have certain credit requirements to be able to claim this rebate. The finance office is Credit Score based and you must be below 620 to qualify. If you are over a 620 you must add up to $1500 to the price. Varies by make and model. Not all units are eligible for this rebate. Call Dealer for Details."

Let that sink in for a moment...this lender is actually trying to attract borrowers with lower credit scores rather than higher...on a $55,000 vehicle no less.

Truck

 

All of which helps to explain why this happened:

Subprime

 

Meanwhile, Cutts seems to agree with our assessment noting that credit scores haven't really changed but lenders continue to get more and more aggressive on underwriting standards in order to keep the party going just a little longer...which sounds familiar to those of us old enough to have lived through the mortgage crisis 10 years ago. 

The reason for the increase, she posited, is that lenders have loosened underwriting requirements as more firms tap into a declining market for car loans, not that there are more customers with worsening credit profiles.

 

"It isn’t a case of chasing a larger subprime share,” Cutts said in an email Tuesday. There’s been “almost no change in median credit scores. That means they are letting other underwriting characteristics slide,” she said, referring to the lenders that issue the bulk of subprime loans -- so-called monolines that specialize in one area of the credit market and dealer-finance companies that work specifically with car sellers.

 

“As soon as lenders (and the investors behind them) get overconfident that they have better models and can make excess profits by disrespecting credit risk, they always get their hats handed to them sooner or later,” Cutts said. “The mortgage market learned this lesson at the expense of the entire global financial system, and it is playing out now in a micro-level, in the ABS market for subprime auto loans.”

As we like to say, math always wins in the end...and somehow we suspect that offering $0 down, 0% financing for 80 months so deep subprime borrowers making $30k a year can purchase a $40,000 BMW doesn't actually pencil out over the long haul...

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Jason T's picture

am in market for toyotal Sienna .. something this Fall would be good.  I held off this summer waiting...

Praetorian Guard's picture

Check out fightingchance.com their info has always saved me a shit load of cash.

 

 

Come join us at www.gunsgrubandgold.com ALL are welcome!!

 

toady's picture

Me too... The truck just turned twenty  (97) and has been costing a couple grand a year in repairs.

The problem is, no matter how many "carmagedden" articles I see, the prices keep going up!

The damn Fed will get their fucking inflation no matter what!

Berspankme's picture

Friend bought one in May. Very nice vehicle

chemcounter's picture

I suggest read the Toyota way. You will then understand why they never discount their new vehicles like the other car companies. Essentially, they shut off production much faster than the other guys and have a big pile of cash to wait out the downturn.  You may get lucky if you find one on the lot and the dealer is in bad shape.

LawsofPhysics's picture

what's that?  moar, overproduction?  moar capital and resource mis-allocation???

 

Gee, I wonder if 10 fucking years of FREE MONEY (twist, NIRP, ZIRP) has anything to do with that?

Your move, Mr. Yellen you criminal cunt!

peopledontwanttruth's picture

What we're seeing is a dying to dead economy as everyone is scrambling to make a dime and don't care where it comes from. It's in real estate, mortgages, health care and services.

The day is coming where people will be scrambling for food and drink.

The worst of human nature will be fully exposed like reef sharks for a single fish.

Crawdaddy's picture

This intential killing of the economy bullshit has been going for over 40 years - that I can vouch for. Probably lots longer but I know for sure at least 40. It is a control technique used to clean us out of our remaining assets until we are truly their bitch. It it truly a bummer there are not enough people awake to counter the mindfucks being sent our way.

peopledontwanttruth's picture

Well put they want it all and then to watch people scramble and beg for food before the culling

Rainman's picture

" I sold 2 Santanders today !"

      ~` salesman overheard at a local car lot

Ban KKiller's picture

Santander loans to the rez. Good luck trying to repo a car from there!

Honey-Badger's picture

I love my shitbox I know everything has been replaced, maintained and cared for, shits going to have to get alot cheaper for me to want to sell it.

Crazy Or Not's picture

Power Train plant manufacturers are being hit by the shift to electric (No matter whether it works or not!)
The shift to leasing in Europe  large back end bubble payments
Bottom feeder $5 a day!... and other Short term & hourly hire is hitting purchases
As well as the insecurity over fuel types LPG LNG Hybrids.. pure LNG/LPG & electric crossovers...
Market is so confused many prefer to wait, and Diesel sales badly hit by the clean air EU legislation roll outs

https://www.rolandberger.com/publications/publication_pdf/roland_berger_...

e_goldstein's picture

Does everything Blythe Masters touches turn to shit?

The girl whose bad math destroyed Western Civilization.

http://www.zerohedge.com/news/2015-07-15/unholy-alliance-blythe-masters-...

DEMIZEN's picture

it's nothing. seasonal nonsense. keep buying.

buzzsaw99's picture

the guy trying to buy a vehicle with his ebt card comes to mind.  it ain't over until it's over.

Shpedly's picture

The Repo man cometh.

peopledontwanttruth's picture

One day even he won't come. They'll be sitting every where with no one to care.

goldoverbtc's picture

If they cant get them on housing, they have to get them in the car loan.  The logic is the same, everyone needs a car so they will pay any rate to get it.  This was the thinking during the housing build up, everyone needs a house, so they won't default on their mortgage....

www.escapeamazon.com

wisehiney's picture

Repo guys and head Dr.'s are supporting the whole damn economy.

in4mayshun's picture

Don't forget cancer treatment

Grandad Grumps's picture

Getting close to time to buy a nice low mileage used car.

atomp's picture

lol "Low credit score offer." Astounding.

MojoHoHo's picture

In 2027 The poor bastards driving around my 60K dream pickups are gonna feel pretty silly with a 10yr old 12K pickup they are making $500 dollar refinanced payments on..

Crawdaddy's picture

Wait until they do with cars what the assholes have done with houses. The Most Stupid Home Purchase in the World turns in to the golden bet as they turn it over for double the money they couldnt afford the first time? Next thing you know your dumbass buddy who cant hold a decent job lives in a paid for house (which financed a dune buggy, 4 wheeler, tractor, jet ski) as you continue struggling to pay a mortgage you took out 20 years ago. The rules have changed!

Berspankme's picture

Yeah but will Ben fucking Bernanke tell them prices never go down?

peopledontwanttruth's picture

You sound like me. I like your style of wording

peippe's picture

Hmmm.. ten year high ten year high...that would place us back at 8/2007?

Omg it's gonna blow! C U on the other side my Dbaggz!   : O

BetterRalph's picture

first "race" Alpha Jalloh CFV1111, vs. Alpha Jalloh CFV1112

The Great Carmageddon Chop Shop Race

the point here is the PLATES don't make sense. The FIGHT Alpha Jalloh Vs Alpha Jalloh (a totally different rat line but tolerated by the treasonous Intelligence Community)

/sarc for clarity

JackMeOff's picture

Ignore the man behind the black curtain.  

itstippy's picture

The "deep subprime" offer on a $55K truck tells me that lenders are fighting for the "stupid as shit" consumer market.

If I were in financial "deep subprime" territory as a consumer I'd be looking at entry-level KIAs and Hyundis.  Anyone in "deep subprime" who's looking at $50K pickup trucks is by default a moron.  They probably buy $200 sneakers and Starter jackets too.

Anyone buying deep subprime bundled securities expecting outsized returns is also a complete moron.  Morons financing morons to make moronic purchases is not a good business model. 

TimeIsTheFire's picture

"....is by default a moron."

How do you think they got themselves into the deep subprime predicament in the first place?

Berspankme's picture

I have fairly substantial net worth, mostly liquid. I buy used cars and $40 sneakers

Peak Finance's picture

WOW!

Lucky for us, they passed the Dodd-Frank bill, so they can bail out all of these guys, with no public discourse, without our permission, in the dark of night, with no news coverage. 

Offthebeach's picture

Getting it in the ass at night is so very Barney Frank

moorewasthebestbond's picture

Nobody could have possibly seen this coming...

spanish inquisition's picture

Time to take a tip from politics and start giving loans to the dead. They voted, so sell them a car! They should qualify under the current programs.

Seasmoke's picture

2008. They paid car loans over mortgages. Shocking they said.
2018. They will pay food bill over car loans. Shocking they will say.

NMA's picture

Wonder if these new self driving cars can repo themselves......

CRM114's picture

..it will take 3 weeks till there's a brutha with a video on Youtube showing you how to hack it so it doesn't.

aliens is here's picture

Don't be racissssst. People in the hood and rapefugees needs a pimp ride too. Sell them another if they can't pay to show them you not a racisssssst.

 

JLM's picture

A family member just leased a new car in the US.  No proof of income required.  Member is self employed and had not done their taxes for 2016 yet.  Spouse not working as in school.  Sounds like 100% mortgages sub-prime on a smaller scale. 

83_vf_1100_c's picture

$40k for a base model 1/2 ton 4' bed v6 fucking Dodge! Drop it to $20k and I'd still pass, it ain't a truck. If you can't close the tailgate o a load of plywood, if you can't safely pull a 10k lb trailer it is just a low capacity poorly designed minivan. 4 ft bed, whodafuq came up with that idea? I can't load a motorcycle in the back of that thing.

2 days ago we bought a 1989 Chevy 2500 single cab long bed. Nice interior, straight as a ruler body, runs straight, paint is sun cooked. 350 v8. $1500. The 16 yr old boy has his 1st vehicle. The valve guides are worn so he will be learning how to swap out heads within a year. Compression is good, tranny, suspension, steering all good. $500 in heads and gaskets and a day or two of sweat equity and the kid will get 5 or more years of a real truck for $2k. Or, he'll total it in the 1st 90 days.

 

gregga777's picture

The front wheels would probably be off the pavement if you hitched a 10,000 pound trailer to that V-6 Dodge.

gregga777's picture

Don't worry. The Goldman Sachs Feral Reserve System will trot out another $33 TRILLION bailout for all of the banking gangster criminals like they did during the Great Financial Crisis. By the way, $33 TRILLION is enough make all US public and private pension funds overfunded by about 4X. Privatizing the banking gangsters profits and socializing their losses on to the backs of taxpayers, current and future retirees does have enormous consequences.

Remember that when a political parasite or a banking gangster is pleading for its life on the gallows. Be strong. Don't waver. Also, do not use trap doors on the gallows. That breaks the criminal's neck and quickly ends their life. You can prolong their terror and suffering to at least 15 minutes by just letting them dangle with their toes barely touching the ground.

peopledontwanttruth's picture

Gregga

The Goldman Sachs Feral Reserve System will trot out another $33 TRILLION bailout for all of the banking gangster criminals like they did

Don't think it's going to fly this time. The world has caught on and are insulating themselves from this overspending beast. They've been sitting back waiting for this moment