Signs Of The Peak: These 10 Charts Reveal An Auto Bubble On The Brink

U.S. auto sales have hovered well north of replacement rates for several years now on the back of an improving labor environment and more importantly an extremely accommodating financing market characterized by $0 down, 0% interest loans to subprime borrowers, with perpetually longer maturities to help manage monthly payments...because if your monthly payment is $500 you can afford it, right?

But, according to data presented in Experian's Q3 2017 auto financing market update slides, the auto market may finally be on the brink of running right off the other side of Ford's proverbial "Plateau."

First, as we've warned numerous times, inflated auto sales continue to come solely from an unprecedented expansion in consumer credit... expansion which has thrived by targeting lower and lower credit quality borrowers.

Of course, with auto OEM's now fully dependent on further penetration of the 'Deep Subprime' and 'Subprime' borrower universe as a source of their marginal buyer of last resort, it's only logical that the term structure of auto loans on the lower end of the credit spectrum would continue to get stretched with Experian noting that 85+ month loans have now become the norm. 

Meanwhile, the continued deterioration in credit quality comes despite elevated delinquencies all across the country.

But the key data which seems to suggest that the auto bubble may have run its course comes from the following charts which reveal that traditional banks and finance companies are starting to aggressively slash their share of new auto originations while OEM captives are being forced to pick up the slack in an effort to keep their ponzi schemes going just a little longer...

But we're sure all this is just a natural result of healthy competition between lenders and has absolutely nothing to do with banks getting nervous about that coming flood of lease returns...

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ted41776 Fri, 12/08/2017 - 17:01 Permalink

what could possibly go wrong? the virtual printing press printing virtual debt gets broken? come on now, this pyramid scheme is golden, fiat forever! sub-sub-prime lending for everyone, just take out some more payday payday loans to pay for your payday loans that pay for your credit card, it's the murkan way

ted41776 FreeShitter Fri, 12/08/2017 - 17:25 Permalink

we're only creating trillions of dollars out of thin air and giving it to the banks with zero interest because we care about the average Joe, you know, the little guy. because how is he ever to get ahead without that credit card banks are going to lend him money on with 30% interest? this is democracy you know, being in debt in perpetuity is how everyone is going to get the best standard of living! and we have to make sure the rest of the world does the same, because without debt there is no happiness

In reply to by FreeShitter

GunnerySgtHartman Fri, 12/08/2017 - 17:01 Permalink

Looks like Ford was right on the money when they said car sales had peaked.That chart of cars coming off lease is just scary ... I wouldn't want to be in the car biz when that dam breaks.

j0nx Fri, 12/08/2017 - 17:32 Permalink

$40k for a base model mustang GT? Yeah that makes perfect sense. Not. When the hell did cars get so damn expensive? And dealers want to charge you top crazy dollar for their used beaters and give you fair market kbb for your car that is in excellent condition. And they won’t budge most of the time or very little.

Dealers are all like carmax now. The advertised price is the price and if you don’t like it then you can get to stepping or wait for them to lower it in a month or two if some other guy doesn’t buy it before then which they will. Car market is worse than the house market imo.

fwaynemartin FreeShitter Fri, 12/08/2017 - 17:56 Permalink

Except that a 1968 Mustang was a POS. The frame sucked, none of the panels lined up, wheel alignment every year, tires 20k, mufflers go bad every year or so, alternators last maybe 30k, the list is long. Cars were rusted out in 5 years, ready for the scrap yard in 10. The doors dropped down off the hinges.......not enough time to reminisce. I'm not disagreeing that cars are expensive, but these days most cars go for 200k miles no problem.  It was a rare sight to see a 4x4 truck from the 70's get 100k on them. Come on, all you old farts remember the "good old days".

In reply to by FreeShitter

fwaynemartin in4mayshun Fri, 12/08/2017 - 17:50 Permalink

A bicycle today (not a very nice one) costs about the same as they did in the mid-70's. $100-150 at (pick your Big Box store). Really nice bicycles cost about what you're saying they are today, but are infinitely better engineered. Carbon fiber, titanium throughout.....who'da thought.  I had a Raleigh and a Motobecane

In reply to by in4mayshun

AyatollahOfRoc… j0nx Fri, 12/08/2017 - 17:56 Permalink

I agree completely.  I recently shopped to replace a 10-year-old truck.  I am most concerned with cash purchase price, but instead of negotiating the price dealers just try to entice with a low monthly based on an 84-month loan, or a sucker's lease.  Sucks.  I wish this Depression would hit so I could buy some cool toys at fire sale prices again, like in 2008-10.

In reply to by j0nx

fwaynemartin Fri, 12/08/2017 - 17:36 Permalink

Everyone run out and buy lots of gold (or is it silver now?). The collapse is imminent, and when the shtf, millionaires will pay any price you want for those coins. I must say, it sure was a good selling tactic 8 years ago. Seriously, we have 19 1 oz gold coins. Had we invested in the stock market in 2010 instead of flushing our money down the toiletbuying gold, we could have doubled our money or much more depending on the investment. ZH, when is gold going to hit $5000 so we can sell these slot machine tokens and recoup our losses? P.S. maybe this time around they'll call it cash for Trumpers.  

fwaynemartin fwaynemartin Fri, 12/08/2017 - 17:51 Permalink

Explain the -1 please. We bought gold based on all the gold bug experts predicting certain death to the economy, the dollar and the stock market.I remember in the 70's when the planets were all going to line up in 1982 and all sorts of bad things were going to happen. Double digit interest rates, no jobs, perpetual unemployment.....nothing but doom forever. Why bother going to college when there weren't going to be any jobs......ever again. Then along comes Reagan. It just goes to show, nobody can really predict the future all that well. 

In reply to by fwaynemartin

Bunga Bunga Fri, 12/08/2017 - 17:56 Permalink

I wonder where all the used cars end up. If statistics are true 18 million cars are sold every year, but if you look in the used car market, there isn't any sign of that. It's very hard to find a good used one, except you pay almost the new price. One private seller told me, he isn't going down with the price, because the dealer pays him his asking price as trade in for a new car easily. I never heard of him again, also I can't find it on any used car dealer lot after weeks of research. To me it looks like that the new car dealers get incentives in order to scrap used cars, they are exported to the third world or they just parked somewhere in the desert. Or the statistics are simply a lie. 

3-fingered_chemist Fri, 12/08/2017 - 22:23 Permalink

I'm leisurely looking for a newer car. Honda dealer nearby has a 2006 Honda CR-V with 110k. Pretty low miles for a 12 year old car. No haggle price is 8k! WTF? Trade in is somewhere around 3500 according to KBB. Did I mention it is a FWD CR-V which basically has no re-sale value on top of it? I'd pay no more than 5000, but I know the dealer probably won't budge below 7k. Auto market is FUBAR. 

milking institute Fri, 12/08/2017 - 23:03 Permalink

Looking at a 1976 ford pinto at the local dealer,only 258 K original miles! but they are asking 14950.00 due to the upgraded premium package: eight track sound system and real breaks in the rear. i'm tempted,love the lines and the sales person tells me it's a classic. should i go for it? anybody have an opinion on this fine automobile? 

ItsSnowingInColorado Sat, 12/09/2017 - 02:24 Permalink

I recently bought a "new" car. 1991 toyota pickup dlx with 78,000 miles. 1200 bucks from a farmer near me. He decided to finance a kawasaki mule. His logic is beyond me. Minimal work needed, instead he opted for the new shiny toy.Got the factory service manual, wrenched on it a bit, visited the pull and pay yard, and now I have a nice heated atv. The only reason to visit a car dealership is to get a free coffee. 

XBroker1 Sat, 12/09/2017 - 09:00 Permalink

My 01 Camry was my last new purchase. The 2018 is the first Camry that's come close to having me consider another one. Also have a 2011 J vin laying around. No worries parking the 01 anywhere. If I bought a new one I'd probably concern myself w/ all sorts of nonsense like that.