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Desperately Seeking: Subprime Collateral

Tyler Durden's picture


UPDATE: Added Santelli carefully negotiating LeBeau's awesome optimism.

Like everywhere else, quality collateral is increasingly being soaked away and nowhere is this more evident than in the auto industry. We recently noted the significance of the auto industry and its self-fulfilling (and destroying) channel-stuffing 'mandates' around the world but today we get confirmation of the depths the car industry will stoop to. Via Subprime News, we see that Preferred Automobile Credit Co. (PACCO) is 'expanding' both the age and mileage limits of vehicles eligible for collateral, as "the pool of quality used cars has been shrinking, making it more challenging for dealers to find quality inventory". Of course, any 'knock' on the risk management or honesty or sustainability of an auto industry so much a part of the US recovery would not be complete without CNBC's Phil LeBeau's rebuff that the entire industry sees things as golden (in all its rear-view mirror glory) - we wonder what subprime lenders were saying about the environment for loans in 2006? And of course they can carry that 20% interest-rate, car prices never go down right?


and this from BBG earlier:

Preferred Automobile Credit Co. (PACCO) expanded age, mileage limits of vehicles eligible for financing, reports.


Increased allowable age of eligible cars, SUVs, trucks from 8-10 years, max allowable mileage from 115k to 130k miles


"In recent years, pool of “quality used cars has been shrinking,” making it challenging for dealers to find     quality inventory": PACCO president CJ Zaruba


[even subprime collateral is running out!!!]


"At the same time, we've found that older model year and higher mileage vehicles, when purchased from quality dealers, pose no greater collateral risk to PACCO. The industry is changing, and we are changing with it," Zaruba continued.


And Santelli carefully negotiating LeBeau's awesomeness...


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Tue, 08/07/2012 - 12:00 | 2684909 q99x2
q99x2's picture

Wrecking yard repos.

Tue, 08/07/2012 - 12:09 | 2684943 glenlloyd
glenlloyd's picture

Financing for insurance auction vehicles (read salvage title) will be next.

Tue, 08/07/2012 - 12:28 | 2685019 NotApplicable
NotApplicable's picture

My guess is that the definition of a "used" car will evolve to include the oldest, never driven, channel-stuffed vehicles.

I wonder how long they can sit in a parking lot before spoiling?

Tue, 08/07/2012 - 13:25 | 2685162 Enceladus
Tue, 08/07/2012 - 13:38 | 2685193 pursueliberty
pursueliberty's picture

Go long tire companies.


My last F250 had to have the tires replaced a week after I purchased it due to flat spotting on the rural west Texas dealer lot. 

Tue, 08/07/2012 - 13:49 | 2685233 aerojet
aerojet's picture

Not as long as you would think--that was a problem in '08 and '09 with the huge vehicle inventories where new cars were being stored wherever they could find room for them. 

Tue, 08/07/2012 - 12:19 | 2684977 francis_sawyer
francis_sawyer's picture

Don't knock the wrecking yard...

ODD JOB & AURIC GOLDFINGER put wrecking yards on the map...

Tue, 08/07/2012 - 12:01 | 2684912 azzhatter
azzhatter's picture

LaBeau is another commie sympathizer I would love to see imprisoned. His mouth is so tightly wrapped around GM's collective penis, I surprised he can speak

Tue, 08/07/2012 - 12:03 | 2684918 The Axe
The Axe's picture

I think you spoked VRD   Nuveen s and P Muni etf    flash clash 50 percent in 30 seconds......   or perhaps a new Knight trading algo

Tue, 08/07/2012 - 12:06 | 2684929 vinu02
vinu02's picture

Get ride of credit card and see how many able to purchase car.

Tue, 08/07/2012 - 12:06 | 2684932 mewenz
mewenz's picture

same concept the Fed & ECB  will do more and more of as time goes, if you can't find good collateral, change the definition of good

Tue, 08/07/2012 - 12:10 | 2684938 HD
HD's picture

Finally someone will give me top dollar for my "lightly used" AMC Gremlin!

Tue, 08/07/2012 - 12:27 | 2685009 SokPOTUS
SokPOTUS's picture

A Romney-mobile...

Tue, 08/07/2012 - 12:27 | 2685013 AlaricBalth
AlaricBalth's picture

What's the LTV on this Gremlin with the bimbo option package?

Tue, 08/07/2012 - 13:41 | 2685198 Overfed
Overfed's picture

Gremlins actually ARE selling for big $ on ebay.

Tue, 08/07/2012 - 12:09 | 2684942 mirac
mirac's picture

Imagine if Americans had to figure out the mileage in the Metric

Tue, 08/07/2012 - 12:21 | 2684988 francis_sawyer
francis_sawyer's picture

Imagine if Americans had to figure out anything... Perhaps someday soon, they will...

Tue, 08/07/2012 - 13:35 | 2685187 pods
pods's picture

I am still getting used to my metric Crescent Wrench.


Wed, 08/08/2012 - 21:13 | 2689603 Hurdy Gurdy Man
Hurdy Gurdy Man's picture

Imagine if we had to keep Germany weak so it doesn't Hegemon all over your cheese-smelling ass, Eurodick.

Tue, 08/07/2012 - 12:22 | 2684989 francis_sawyer
francis_sawyer's picture

All Americans have loosely figured out thus far is that they're "10-1"... & the checks still keep coming in...

Tue, 08/07/2012 - 14:03 | 2685270 UGrev
UGrev's picture

Imagine if Americans gave a shit about using the metric system. We think bigger.. always have. We can't help it if you need to use smaller units of measurement so you could assess your cock sizes. /end sarc

Actually, there is a pretty big move to metrics over here. Medical industry especially. But I'll be fucked in the ass if we adopt "stones" for measuring weight.  But it might be fashionable to say that you are N tron pounds.. nahhh.. 

Tue, 08/07/2012 - 12:11 | 2684947 buzzsaw99
buzzsaw99's picture

10 years old and 130K miles. omg

Tue, 08/07/2012 - 14:29 | 2685336 Papasmurf
Papasmurf's picture

What's wrong with that?  I stopped buying new cars in 1982. 

Tue, 08/07/2012 - 12:13 | 2684953 Neethgie
Neethgie's picture

if you crash two of them together is that like a CDO? do you get a better rating?

Tue, 08/07/2012 - 12:15 | 2684958 buzzsaw99
buzzsaw99's picture

the new battery and half a tank of gas go into one tranche while the worn out tires get put into another...

Tue, 08/07/2012 - 12:25 | 2685005 francis_sawyer
francis_sawyer's picture

We're at HALFTIME America!... (2nd half is about arranging sleeping accomodations in your 'CHOOMmobile')...

Tue, 08/07/2012 - 12:31 | 2685024 Tippoo Sultan
Tippoo Sultan's picture

I picture it looking like the van Sean Penn bailed out of each morning in, "Fast Times at Ridgemont High."

Tue, 08/07/2012 - 12:46 | 2685080 francis_sawyer
francis_sawyer's picture

I know that dude...

~Jeff Spicoli

Tue, 08/07/2012 - 12:47 | 2685083 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

here is the clip. Choom choom and away.

Tue, 08/07/2012 - 13:21 | 2685106 Tippoo Sultan
Tippoo Sultan's picture

Mr. Hand took that footage...


Tue, 08/07/2012 - 16:35 | 2685736 francis_sawyer
francis_sawyer's picture

You didn't film that scene... ~ lol

Tue, 08/07/2012 - 12:14 | 2684956 q99x2
q99x2's picture

I just got my 2013 tags on my 1992 Toyota Corolla this morning. That sucker still runs great. I bought it in 1992. I hope to outlive it someday.

Tue, 08/07/2012 - 13:45 | 2685215 Seer
Seer's picture

"I hope to outlive it someday."

Yeah, these things just keep running!  Tons of them down in Manilla: that's got to say something about them.

I've got 172k miles on my 1990.  Cheap to maintain and operate: for the first time I recently manged to eek out 40mpg (yes, highway miles); usually get around 37 or so.  Would like to be able to afford to pick up a new replacement engine to have on the standby for when this one finally kicks the bucket: might have a 100k left to go yet.

Finally got my "new" truck, a 1993 Ford (non-turbo - no electronics [except a cheap/simple glow plug controller, which I replaced]- these can be readily bypassed if needed]) IDI diesel- 248k miles and it probably runs smoother than any new vehicle out there!  Doesn't seem to leak a drop, or burn one.  $2,500, no "financing" required!

Tue, 08/07/2012 - 14:08 | 2685280 A Nanny Moose
A Nanny Moose's picture

Don't hold your breath on killing a Toyota.

Tue, 08/07/2012 - 14:32 | 2685349 Papasmurf
Papasmurf's picture

That'll buff out.

Tue, 08/07/2012 - 12:15 | 2684961 optimator
optimator's picture

I know of a couple coming out of bankruptcy that bought a new car, the dealer allowing the rebate to be the down payment.   Wife took off with the car, no payments made, and two years later the credit company is still looking for the car!

Tue, 08/07/2012 - 12:29 | 2685020 SokPOTUS
SokPOTUS's picture

Good.  At least somebody got something out of the bailouts...

Tue, 08/07/2012 - 12:16 | 2684964 GraveyardSpiral
GraveyardSpiral's picture

I suppose a car with 'only' 130K miles on it is a good investment choice to take the sheeples to their new part-time jobs at Taco Bell and Cinnabon!     Fuck You Bernanke!!!!!!!!!!

Tue, 08/07/2012 - 15:25 | 2685554 Papasmurf
Papasmurf's picture

A used car with only 130,000 miles is a better investment than a new car containing a battery costing twice as much.

Tue, 08/07/2012 - 12:16 | 2684966 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Of course according to MDB, channel stuffing will help the 'recovery'. Maybe he should get his channel stuffed...

Tue, 08/07/2012 - 12:20 | 2684968 HD
HD's picture

Push, pull or drag in your rusted out piece o'crap and have a qualifying 350 fico score and drive away today in a new Chevy Volt.

Tue, 08/07/2012 - 13:48 | 2685224 Seer
Seer's picture

And have a BRIGHT* future!

* Teach a man how to light a fire and he'll be warm for the day.  Set him on fire and he'll be warm for the "rest" of his life!

Tue, 08/07/2012 - 15:39 | 2685592 BooMushroom
BooMushroom's picture

That's the problem! All the rusted out pieces of crap were sent to the recycling plant during cash for clunkers.

Tue, 08/07/2012 - 12:18 | 2684974 SmittyinLA
SmittyinLA's picture

Financing cars was from "back in the day" when cars were NOT disposable consumables like they are now. 

Tue, 08/07/2012 - 13:55 | 2685251 aerojet
aerojet's picture

Cars were always depreciating assets, so I don't know what you're trying to say here.  Cars are more durable now than they ever were in the past (okay, maybe not Chryslers).

Tue, 08/07/2012 - 15:00 | 2685468 Seer
Seer's picture

"Cars are more durable now than they ever were in the past"

Yeah, just like people today are genetically longer-lived!  NOT!

Take away all those highly trained mechanics and specialized equipment (in the case of people it's trained doctors/surgeons and massive medical industry) and any little problem will take them out of the game.  Just saw this the other day, some woman with a compact Mercedes (only a 2006) that wouldn't' start; it was at a local Ford dealership (first place she came to after having a problem with the car); the mechanics there were baffled (battery was good, yet it wouldn't start- one guy thought that it might be the battery in the key-less key [I didn't stick around to find out]).

My old IDI diesel truck will be running long after all the new electronically controlled stuff has failed: manual trans, so even if no battery and given a big enough downslope I could still start the thing.  Kind of like a stealth bomber vs. a Cessna- take out the Stealth's computer system and it's a lawn ornament.  Slow and steady wins the race...

It really depends on what the individual asset is.  My 1990 Toyota has probably increased in value over what it might have pulled in several years back: people scrambling for fuel-efficient vehicles; mine gets better mpg than all but a very few new vehicles out there.

Tue, 08/07/2012 - 14:13 | 2685291 A Nanny Moose
A Nanny Moose's picture

I don't know. My 2000 Subie has 250K miles. Just replaced the trans and original clutch, and its good for another 100K at least.

Tue, 08/07/2012 - 12:27 | 2685017 tahoebumsmith
tahoebumsmith's picture

The older the car and the more mileage it has, the lower the price will be. As more and more Americans lose their full time jobs and salaries keep shrinking, people will have to buy less of a car... It's what people can afford, not what the industry thinks the cars are worth. Remember it was only a few years ago when the Government wanted all these cars off the road, Cash For Clunkers? Boy how things change when they see serfs signing 20% + interest loans to drive a piece of shit!

Tue, 08/07/2012 - 12:47 | 2685086 fuu
fuu's picture

Yet another example of the glory that is central planning.

Tue, 08/07/2012 - 13:50 | 2685234 Seer
Seer's picture

The "planners" are the banksters.  Govt is just acting as a conduit...

Tue, 08/07/2012 - 12:30 | 2685022 toady
toady's picture

I'm thinking prices are gonna crash. All those lots full of vehicles need to move sometime, but it won't happen until a trigger event hits.

I know a guy who knows a guy over at a GMC dealership. There is a kind of an underground understanding that when they go under they will disappear the inventory into the community before they let some liquidators take them.

So I got that going for me!

Tue, 08/07/2012 - 13:55 | 2685248 Seer
Seer's picture

Well... some/many of the new vehicles are really nice, but they're really not serviceable; and, replacement parts tend to be very pricey.  I'm not thinking that people will be bringing their "illegal" vehicles to any "certified" repair shops, as such shops will likely be forced to notify the "authorities" of any "illegal" vehicles coming in.

I suspect that the main market will be for parts.  Most of this stuff will be stripped and sold for parts. (kind of like all those new [never been lived in] housing developments sitting empty in CA where people were yanking out all the wires and fixtures).

Tue, 08/07/2012 - 13:57 | 2685255 aerojet
aerojet's picture

"You know a guy?"  --Oceans 11

Tue, 08/07/2012 - 15:07 | 2685492 Gavrikon
Gavrikon's picture

Which is nice!

Tue, 08/07/2012 - 17:48 | 2685902 hannah
hannah's picture

good luck with that as the dealers dont hold title for the cars on their lots. the bank that provides the floor loans holds them so no one is going to get to 'steal' a car and then get it titled.

Tue, 08/07/2012 - 12:32 | 2685034 fresno dan
fresno dan's picture

Collateral - no problem for me - as the natural gas reserves turn out not so big and the need for energy continues, my breakfast burretos maintain a copious supply of my own personal gas, which due to its high quality and reliable supply meets Basel III standards for tier I assets. 

Tue, 08/07/2012 - 12:49 | 2685090 shanearthur
shanearthur's picture

If I have this correctly, let me paraphrase LaBeau:

"Sub Prime borrowers are so hard up these days(but wise to the game), all they are reaching for are basic models, not the Cadillacs the dealers pushed on them in '08."


Did I understand this correctly? And how, Mr. LaBeau, does this mean times are better than in '08? Amazing.

Tue, 08/07/2012 - 12:57 | 2685110 reader2010
reader2010's picture


Richard Russell also wrote about living through the Great Depression: 


 I'm walking down Broadway with my collar turned up around my frozen ears. It's a hellish winter morning during January of the year 1939. Manhattan is beset by a blustering, freezing wind. I'm strolling down the west side of the avenue -- Broadway, past Jack Dempsey's, past the record shop, past Lindy's, past the spaghetti and meatball joint, past the Automat, past -- wait, I duck down stairs into the Automat. 


I've still got three nickels in my pocket, and I'm freezing my ass off. I walk up to the hot chocolate booth, and I drop a nickel into the slot. I yank the handle down and a stream of steaming hot chocolate fills my cup. A scraggly-looking bearded old guy walks up to me and groans, "Hey, young fellah, can you spare a coppla nickels? I've got a case of walking pneumonia, and I gotta stay warm." I shake my head, no, and shuffle off to sit at an empty table. Next to me is another empty table. 


There's a plate on the table with what looks like a half-eaten sausage on it. A few seconds later another old guy wearing a French beret hat sits down at that table. He's got a fork in his hand. He scarfs the sausage down, looks at me and winks as if nothing has happened. 


I nod to the old guy. I've got a job designing and selling piece goods. So I feel entitled to goof off at the Automat and have a cup of chocolate. And so far today, no luck -- not one lousy sale. I had a job with the George W. Button Co. up near Harlem but they laid most of us off when things got slow. It was a union job paying $18.75 a week, six days a week including Saturdays. My job was loading trucks with Max Factor women's cosmetics and the cases were heavy as the devil. 


Now I'm a salesman and proud as hell to have a real job. As I'm walking, I pass an employment agency, and there's a long line of grizzled men, hands tucked into their overcoats, all waiting outside the agency. Most are stamping their feet to keep warm. They're hoping that maybe some kind of work comes up. I feel kind of guilty because I'm young, and I have a job.


I cut over across Fifth Avenue towards the west side and head into frozen Central Park. I'm going to look up a few friends from the West Side.  Cutting across the sheep meadow I see all the "Hoovervilles," little huts made of crushed cardboard boxes and flattened tin cans -- all taped or stapled together. Kids and their moms are peering out from the make-shift doors of the huts. I wonder how they all keep warm, because the cops don't let the squatters light fires. 


I cross 84th Street, Central Park West, Columbus Avenue. A shivering lady beckons to me. "C'mere sunny, I want to show you something." I say a bashful "No thanks" and keep walking. I pass a bleary-eyed guy selling apples on the corner. He's holding a hand-painted sign, "Help a vet. 10 cents for an apple." I look away.


"Hey, Russ," calls Wayne, "I know this chick who can get us in the side door of the Paramount. Tommy Dorsey's playing with Sinatra. Want to go?" I shrug my shoulders and say "Sure, I can't sell anything worth a damn any way." And we're off to the Paramount. We skip the box office. Seventy cents admission before 12 o'clock, and that includes a new movie and the floor show. But we don't pay.


... Leaving the theater I trip over some guy. Wouldn't you know it, he turns out to be a cop. He's sitting there with two of his buddies. The cop mutters, "Watch your step, hookie-boy." The cops often duck into theaters when it's cold. And, of course, they never pay -- even for the popcorn. It's the Depression, and everybody is looking for something, anything, for nothing. 


Well, I could go on for 100 more pages about life during the Great Depression, but I hope this gives you some sense of what it was like for teenagers to grow up and survive during the Great Depression. Yeah, and in this piece I told you mostly about the fun part of it. If you were older with a family believe me, it wasn't that much fun.”,_Here_Is_The_Key_Going_Forward.html

Tue, 08/07/2012 - 13:31 | 2685179 Diogenes
Diogenes's picture

I don't doubt his story but by 1939 the depression had been over for 5 years. The US was a year into the big industrial ramp up of WW2, initially supplying goods to Europe, followed by "lend lease" followed by the US military.

The people he describes had it good compared to the real hard times. What he describes is a normal level of unemployment and poverty as it was understood before we got the social safety net.

When you want to take the welfare away, think of those kids in unheated cardboard shacks.

Tue, 08/07/2012 - 14:01 | 2685262 aerojet
aerojet's picture

We're damn near there right now with the safety nets!

Tue, 08/07/2012 - 18:18 | 2685969 hannah
hannah's picture


Lashontay Secretia Abraham Lincoln also wrote about living through the Great Depression:

“I'm walking down Broadway with my hoodie turned up around my frozen ears with the rolls of fat bulging off my neck and chin. It's a hellish winter morning during January of the year 1012. Manhattan is beset by a blustering, freezing wind. I'm strolling down the west side of the avenue -- Broadway, past the Olive Garden, past the hair weave shop, past Lindy's, past the New Best Buy, past the Automat, past -- wait, I duck down stairs into the Automat.
I've still got three nickels in my pocket, and I'm freezing my ass off. I walk up to the hot chocolate booth, and a drink costs $4.35 and the machine only takes a debit card. I hit up an Occupy Wallstreet guy for a twenty to go buy a $5 cup of Starbucks and a $3 cookie as a snack…i gets hungry between meals.
There some left over food on a plate but the restaurant gives all its old food to rescue dogs from mexico. i sold my wic card for $10 and bought some cigarettes so i ain't got no more cash on me. i did have a good government job making $180k a year as a fireman but the city went BNK.
i cant even beg enough money to pay my iphone monthly bill and i am 2 months behind because i spent all my money last month on a Beyonce concert.
i did get a loan to buy a GM car so i have 5 new cars parked over in a vacant lot but i cant afford the gas to drive them.
god this depression is a hassle...every since barack heussein became a dictator and suspended the constitution, things have just gone to hell.

Tue, 08/07/2012 - 13:26 | 2685166 ebworthen
ebworthen's picture

LeBeau is embarrassingly naive and has the glossy countenance of a cult acolyte.

Notice that a great many sales are on credit (debt).

Debt Bubble - Part II.

Tue, 08/07/2012 - 15:43 | 2685603 madcows
madcows's picture

who pays cash for a car?  Almost all car sales are on credit. The issues should be quality of credit and amount of credit. 

Tue, 08/07/2012 - 13:28 | 2685173 MeBizarro
MeBizarro's picture

Another story how the working poor are getting pissed on since having a car is pretty much a necessity to get to work given how limited public transportation is in the U.S. and how it continues to be scaled back since '08.  No surprise.   

Tue, 08/07/2012 - 14:18 | 2685309 Seer
Seer's picture

We can all point fingers, but the reality is is that if anyone is pissing on anyone it's Mother Nature doing the pissing.  "Unsustainable" means unsustainable!

My wife is from Manila.  Go There and take a look and then come back and tell me about how bad off folks here are.

It's an issue of adjusting.  What choice is there?  Reduce your dependencies on those things that are (and will be) failing.

Tue, 08/07/2012 - 13:33 | 2685183 Diogenes
Diogenes's picture

Wonder if Cash for Clunkers had any effect on the supply of quality used cars, and the price level ?

Tue, 08/07/2012 - 14:02 | 2685264 aerojet
aerojet's picture

Define "quality."  Because all the CFC cars I saw were pretty marginal.  Some of the SUVs were still in okay shape, most were clapped out one way or the other.

Tue, 08/07/2012 - 14:27 | 2685329 Seer
Seer's picture

I'm no fan of SUVs, but let's face it, if tools are used correctly they can be decent tools.  Fill those SUVs up with people and your People Miles Per Gallon can eclipse the Prius-driving SOV folks: but, as is usual, seems the bigger the vehicle the less full they are.

Also, older vehicles tend to be more serviceable (and tend to be cheaper to repair).

Tue, 08/07/2012 - 15:07 | 2685494 Stuck on Zero
Stuck on Zero's picture

The auto companies are eliminating used cars by jacking parts prices through the roof.  Car parts are at ridiculous prices now.  A little grey metal box with a $15 circuit board inside now sells for $650.


Tue, 08/07/2012 - 16:24 | 2685708 Whiner
Whiner's picture

Treasury guaranteed residuals in GM's lease financed sales, so dealers can sell to most anybody. Yes, if they don't love it, they CAN (and will) bring it back. Tax payer picks up big deficency tabs. Ya' gotta love it! Bond holder busting, union protecting Chapter 11 w channel surfing and subsidized sales and Gubmint Motors is still in reverse. Maybe Romney will finance Chapter 11 of GM2. He knows a thing or2 about takeovers. Sell it to VW.

Tue, 08/07/2012 - 17:43 | 2685889 viator
viator's picture

Why don't they consolidate all those subprime auto loans into financial instruments? Maybe they could be called collateralized debt obligations. These securities would have good credit ratings and interest income and could be sold to endowments, pensions funds, mutual funds and governments.

Thu, 08/09/2012 - 05:46 | 2690271 Sechel
Sechel's picture

That subprime auto loans are not being repossesed in record numbers while issuance is up and standards are donwn is classic Minsky. Using the default experience of the immediate past to justify lowering standards going forward is idiocy and just brings the market to the next Minsky phase.  At some point people the fact that people who can't afford to buy, are borriwng at double digit rates to finance  8 year old cars that won't survive the duration of the loan will come back to haunt, when more of these borrowers put back the vehicles.  That G.M. has decided it can't sell cars to people with money is particularly scary. G.M. may not be making sub-prime cars these days, but it is a sub-prime car company if it can only survive by targeting under 620 fico borrowers.

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