Subprime Car Loan Bubble Two.0 Utter Frontal
With the total balance of auto loans for fresh and used vehicles approaching $1 trillion in the U.S., the folks at Experian want you to know that no matter what the numbers say, there’s no speculative bubble forming in the industry. Just ask Melinda Zabritski, the group’s director of automotive finance, who is quick to dismiss the growing chorus of Chicken Littles who are worried about subprime auto lending:
Whenever there is an uptick in the number of loans to subprime and deep subprime customers, there is the potential for a ‘sky is falling’ type of reaction, [but] the reality is we are looking at a remarkably stable automotive-loan market, in part because consumers are continuing to stay on top of their payments.
That would be fine if it were true. Of course the reality is that, according to the NY Times, early delinquencies (i.e. borrowers who have missed a payment within eight months of origination) are at their highest level since 2008:
More than Two.6% of car-loan borrowers who took out loans in the very first quarter of last year had missed at least one monthly payment by November, the highest level of early loan trouble since two thousand eight [and] more than 8.4% of borrowers with feeble credit scores who took out loans in the very first quarter of two thousand fourteen had missed payments by November [also] the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.
Combine that with the fact that the percentage of total auto loan originations made to subprime borrowers surged to 27% in two thousand thirteen (the highest level since 2006), the same year that 1.1 million U.S. households took out auto title loans (i.e. the fresh home equity loan), and you’ve got a rather strong argument for the contention that anything we learned in two thousand eight about the perils of liberate lending standards has now been totally forgotten.
Reinforcing this point is Wells Fargo, who notes that things are now officially back to “normal,” where “normal” is amusingly defined by the conditions that prevailed in 2006:
Lending standards for households and corporations have eased to the extent that they resemble the last “normal” period of lending seen in 2006. Credit has expanded rapidly in some loan categories, which has in turn boosted spending and investment.
Of course the bad news is that Americans are again overextended at just the wrong time:
. should interest rates rise later this year, some households and corporations may find themselves overleveraged as interest rates and borrowing costs rise. When looking at interest rate sensitivity by loan product, we see that auto loans rates are the most sensitive to switches in the fed funds target rate. In addition, we can see that for each one-percentage point rise in the fed funds rate, the interest rate on a 48-month fresh car loan rises 0.61 percentage points.
The prudent thing to do, from a lender’s perspective, is to tighten standards when it shows up borrowers are exhibiting a propensity to take on an undue amount of risk. Instead, standards are actually falling as risk-taking increases:
Albeit firms proceed to ease lending standards, they have perceived enlargened risk among some loan types.
And, not remarkably, recklessness is most prevalent in the two categories that have combined to underpin consumer credit growth post-crisis:
Among retail loans, student and auto loans eyed the largest increase in 2014, as more than forty percent of firms reported enlargened risk.
Most disturbing of all, lenders seem to have reverted to their pre-crisis mindset: “If we can sell the loan, who cares about the creditworthiness of the borrower?”
In 2014, a third of all firms originated retail loans with the intent to sell or hold the loan (as opposed to the foot intention to hold the loan). This trend indicates that some firms could be extending loans that they consider less creditworthy and could be anxious to get these higher-risk loans off of their balance sheets.
As a reminder, Six pack issuance hit its highest level since the crisis last year with student and auto loans accounting for the lion’s share. That’s no coincidence.
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- Feb 21, two thousand fifteen 8:14 PM
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Whats this bullshit? I want some REAL utter frontal! On a serious note, it makes me feel better to know that so many people with these “luxury” cars dont actually own the things, they just finance them.
My POS ’92 runs, I can work on it, and it’s paid for.
’95 Grand Cherokee.
Needs a utter tune-up, soon, but with 212K on the lock she runs like a champ.
My ’97 Grand Cherokee is running strong at 180K miles. Needs a little TLC but it’s cheap to maintain. I can get a entire fresh engine cheaper than getting a fuel pump for a fresh Beemer.
It’s better to forclose on one million cars than one million houses.
Houses are off thresholds for the next fifty years. bookmark it
This will kill the car industry. They’re over producing as it is throw in a flow of 2nd mitt repo’d cars to the mix and prices will plummet.
Just redefine the cash for clunker program criteria, add a $15000.00 rebate incentive and badda bing badda boom, problem solved. Oh, ahh.. never mind the big poop pile behind door #2016.
Since last summer, Edison, which serves almost fourteen million customers, has been firing its domestic IT workers and substituting them with outsourced employees from India.
barry’s job creation.
Go price used cars, prices already crashed.
’93 Nissan pickup. Puny old man’s truck. Picked it up at seven thousand miles in ’97 and still runs like a champ!
Fuck me, I thought my two thousand two was truly old.
1991 Ford F150 Lariat XLT 4X4 with a reserve fuel tank. (I call her ‘The General’)
& she’s NOT for sale
1997 Saturn SC2 249k. Substituting a front wheel bearing his weekend.
Remanufactured GC engine (fresh is no longer available) is $1200 + $400 core.
Fresh BMW fuel pump is $500.
Livin’ high with a much newer two thousand five Taurus, also paid for. I guess that puts me in the top 10%.
2005 infiniti paid for 145,000 miles like fresh why do I need a fresh one. Who are these people buying fresh cars I read so much about and why do they spend 30,40,50 thousand when the ilder cars are so much better. If you sre sub prime wtf are you spending that kinda money on a car for. You know its like two thousand seven all over. With one exception better to have them driven than in a lot in timbukto. Suckers finance fresh cars
2007 Mazda B2300, 5sp man.
Hated among the trucknoscenti as too . trucklike.
Paid 11.Four k$ cash as fresh.
Gets the work freaking done. Ordinary. Maintainable.
2005 Chrysler, paid for since day 1. Looking forward to buying some bankrupt idiot’s 100k car for 20k when this thing blows.
For a time, Calgary used to be the Bentley sales capital of the world, for a time.
2000 4runner 117k, paid $Five,000 cash a year ago.
Wont trade up for a long time. Worst thing in the world to put your money into, even worse than Ag
Ive gotta two thousand one Chevy Prizm..bought it off of Craigslist for $1500. its a real nice car, actually its a toyota corolla built for chevy.
Mine obviously was an R&D project, that evidently slipped through the QC dept. and onto a dealers lot one day. It has a two cycle engine that requires a 32:1 mix. (1qt of oil per eight gal gas) It has one of those self mixing deals on it like a fancy bass boat two cycle motor!, you just pour a qt of oil into the sump on top of the engine, and it takes care of the rest! The Wifey said she “Would not be caught dead in this thing” (which was a strange comment, seeings how the trunk is certainly big enough to lightly stuff her into?). I replied “I might be caught with you dead in this thing someday”
I recently put on a jaguar rubber hood emblem and jaguar stickers. I get all sorts of trim, never have to switch the oil, and fine mileage too!
Just don’t put any Jaguar electronics on it.
Cat cunt or human?
Well if you “own” a late model automobile (2013 or newer), you are a loser. Strive for the non-parabolic region of the depreciation curve.
I’ve been telling it for years, there are few nice fresh shiny cars that are actually paid for anymore. It used to be a status symbol when you had a fresh car because either 1) you paid cash for it or Two) you had truly good credit and could borrow. Those times are gone, anyone can finance a fresh car so it means nothing.
When you can get a nice vehicle with no effort at all it means nothing. And as long as people can be financed around the same payment as they had before they will roll their old negative equity loan into a fresh one and budge on. Problem with that is you can do it about three times before you’re done.
People still have a spending problem because they have made little conscious effort to shore up the finances. They’re so oblivious to everything around them and it extends into their financial situation as well. It’s like the lady on the phone getting on the on-ramp in a Suburban who’s dispersed and going about twenty mph but has no clue that there’s a dozen cars backed up behind here while she prattles on on the phone. clueless.