Posted on 03/27/2017 10:34:43 AM PDT by Lorianne
Subprime auto loans, a big force behind booming car sales in recent years, are getting crushed by defaults, particularly those originated between 2013 and 2015 when the proportion of subprime loans began to surge while underwriting standards became loosey-goosey, as private-equity-backed auto finance companies with a ravenous appetite for risk, subprime, and securitization elbowed into the market, amid the exuberance of the greatest credit bubble in history.
“Bad deals are made in good times,” says the old banking saw.
Auto lenders package their loans into asset-backed securities (ABS) and sell them as bonds to yield-hungry institutional investors. Fitch Ratings, which rates auto lenders and auto-loan ABS, just reported on the state of the industry.
The Fitch Auto ABS Indices show that 60+ day delinquencies were relatively low for prime auto loans at the end of Q4, but for subprime loans they’ve surged to 5% of outstanding balances, the highest since at least 2008, during the depth of the Financial Crisis!
Net charge-offs show a similar scenario, only worse. Net Charge-offs from prime loans ticked up to a still low 0.75% of outstanding balances. But net charge-offs from subprime loans surged to 10.5%, the highest since at least 2008!
Subprime is “particularly vulnerable,” Fitch says. It expects credit performance to deteriorate further.
Simultaneously, another trend is biting lenders and investors in subprime auto loan ABS: While for the overall market, average loan terms have reached a record 67 months, for subprime borrowers they’ve jumped to over 72 months.
Fitch adds icily:
[T]he data conflict with commentary from several large auto lenders that have suggested the loan term extensions in recent years have been primarily targeted at prime borrowers.
No one wants to accuse the industry of lying to investors about risks. But this is pretty close.
Another failure of the Obama years. Those TV ads are TOO GOOD TO BE TRUE.
Many bankruptcies today and in the near future are a result of the sham auto loan issues.
Maybe the Federal Reserve can buy up a couple $$ hundred billion worth of these
problem solved.
Surprise...Surprise... People took out subprime auto loans, so they could ‘afford’ the nice new care they deserved, and now when they want another nice, new car, they realize they owe a ton more money than the car is worth! IDIOTS!!!
Let’s see how the car market shakes out after President Trump gets rid of the ridiculous mileage standards.
Probably nothing for years. The car companies have been designing and tooling for those restrictions and can't change it all on a dime.
Sixty-seven to 72 month loans on a piece of merchandise that depreciates in value month-to-month. Wow! If you’re paying 10-20% interest on that loan, you’re gonna learn what upside-down means.
The car companies have been designing and tooling for those restrictions and can’t change it all on a dime.
How to sucker a car Mark
Sell new car AND financing.
Get buyer to trade car for newer car and roll negative equity into new financing. Repeat until they have a massive car payment
If they don’t pay, repossess.
Sell repo’ed car AND financing.
Sell beater to Mark AND financing.
Gas guzzler tax could come off immediately
I’m so old I remember when auto loans were for 24 months.
No more ‘Cash for Clunkers’!
It damn near destroyed the Used Car market!..................
I’d like to know what manufacturers do with all of the UNSOLD vehicles they can’t get rid of. There has to be tens of thousands every year.
First we would sell houses to those who could not afford them, and nearly destroyed the economy. Now we sell expensive cars to those who can not afford them and expect a different result?
The federal government never should have bailed out the failed lenders 8 years ago.
Now they believe they can run amok and count on Uncle Stupid to bail them out again.
All for a consumer purchase that looses nearly 25% of its value the moment you take possession of it - and continues to drop precipitously through the first 4 years of ownership (losing value far faster than you are paying the debt).
Of course, the average price of an automobile has gone up so much that consumers feel the only way to be able to afford them is to finance them longer. Which opens up another can of worms - how much of the current cost of a new vehicles is essentially the result of government regulations/mandates? I would suspect that the figure is pretty high as a percentage.
That is actually THE business model for the auto industry.
I may not be quite that old, but I remember when someone who financed for 5 years was essentially known as "a fool" - 3-4 years being the normal maximum at the time. Then again, look at the average price for a new vehicle then vs now. Then compare that to the average income then and now.
Me too....And, nobody had a credit card of any kind.(And, we listened to the radio evenings as entertainment)
Yep, and what do you want to be they will be bailed out again?
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