Posted on 11/14/2019 2:09:46 PM PST by LesbianThespianGymnasticMidget
But its even worse than it looks. And this time, there is no jobs crisis. This time, its the result of greed by subprime lenders.
Serious auto-loan delinquencies auto loans that are 90 days or more past due in the third quarter of 2019, after an amazing trajectory, reached a historic high of $62 billion, according to data from the New York Fed today:
This $62 billion of seriously delinquent loan balances are what auto lenders, particularly those that specialize in subprime auto loans, such as Santander Consumer USA, Credit Acceptance Corporation, and many smaller specialized lenders are now trying to deal with. If they cannot cure the delinquency, theyre hiring specialized companies that repossess the vehicles to be sold at auction. The difference between the loan balance and the proceeds from the auction, plus the costs involved, are what a lender loses on the deal.
The repo business, however, is booming.
But delinquencies are a flow: As current delinquencies are hitting the lenders balance sheet and income statement, the flow continues and more loans are becoming delinquent. And lenders are still making new loans to risky customers and a portion of those loans will become delinquent too. And now the flow of delinquent loans is increasing and this isnt going to stop anytime soon: These loans are out there and new one are being added to them, and a portion of them will be defaulting.
Total outstanding balances of auto loans and leases in Q3, according to the New York Feds measure (higher and more inclusive than the Federal Reserve Board of Governors consumer credit data) rose to $1.32 trillion:
Serious delinquencies jumped to 4.71% of these $1.32 trillion in total loans and leases outstanding, the highest since Q4 2011, when the auto industry was emerging from collapse. And on the way up, this 4.71% is just above the level of Q3 2009, months after GM and Chrysler had filed for bankruptcy and a year after Lehman had filed for bankruptcy, when the US was confronting the worst unemployment crisis since the Great Depression, and when people were defaulting on their auto loans because theyd lost their jobs:
The current rate of 4.71% is just 56 basis points below the peak of Q4 2010. But these are the good times and not an employment crisis, when millions of people who lost their jobs cannot make their loan payments.
So what is going to happen to auto loan delinquencies when employment experiences a pullback, even a fairly modest one, such as when one million people lose their jobs? That was a rhetorical question. We know what will happen: The serious delinquency rate will set a record for the annals of history. But its even worse than it looks.
Prime auto loans have minuscule default rates. The total of $1.3 billion in auto loans and leases outstanding includes leases to consumers who could pay cash for the vehicles but lease them for various reasons. According to a different measure by Fitch, prime auto loans currently have a 60-day delinquency rate hovering at a historically low 0.28%.
Of the $1.32 trillion in auto loans outstanding, about 22% are subprime, so about $300 billion. Of them roughly, $62 billion are seriously delinquent or around 20% of all subprime loans outstanding. One in five!
But this subprime delinquency fiasco is not a sign of an employment crisis and a brutal recession as these types of numbers indicated during the Financial Crisis. Employment is still growing, and unemployment claims are near historic lows. Nevertheless, subprime auto loans are defaulting at astounding rates. Whats going on? Greed not an economic crisis.
Subprime lending is risky but immensely profitable. The thing is: Customers who have a subprime credit rating are painfully aware of it. They have been turned down for low-interest rate loans. They have been turned away. And now they walk on a car lot where their credit rating suddenly is no problem. And they become sitting ducks. The industry knows this.
They dont even negotiate. They just accept the price, the payment, the interest rate, and the trade-in value. Theyre ecstatic to get a car. And they end up with a huge payment at a high interest rate, and given how strung out they already are to be subprime rated in the first place, that loan is doomed.
Thats the irony: a low-interest-rate loan on an affordable car, sold at an average profit, would give the customer a much higher chance of keeping the loan current than a loan with a 15% interest rate on a car the customer cannot afford, including a big-fat dealer profit of the type that can only be obtained from a sitting duck. Those loans, born out of greed, and are doomed.
This is what were seeing here. These loans were born out of greed over the past few years, as the industry was getting very aggressive in pursuing subprime rated customers because theyre sitting ducks and so immensely profitable. What were seeing now are the consequences of that greed.
Whites for sure.
All of them would flunk the emissions and crash tests(esp. the more stringent IIHS test)
Vehicles are so expensive because the government helped. Their mandates are driving up the prices faster and faster. Unrealistic mpg goals, making features mandatory that should be voluntary upgrades. Using gas car sales to fund electric cars. It goes on. It's nearly impossible to find a basic vehicle anymore.
The diversity-finance complex crashed the world economy in 2008. The profits must be astounding because it looks like a repeat.
I was in touch with the Chinese cars for around 25 years and in is about 15 years since they worth considering. Still subpar but the price is a factor. 15 years ago they were all Toyota Hilux and Isuzu D-Max clones. Rusted out fast and had faulty electrics but they were 6-8k for midsize truck with automatic transmission and a/c. Now they have BMW X6 lookalikes with 250hp engines for 25k. It is still faulty but isn’t BMW too nowadays?
“Well, you do if you can charge 25% interest. For a car loan.”
My wife parents got divorced in the mid-late 70’s - her mother bought a small townhome (she had a great job) @ 17.5% — and it was a good rate for the time...
Jimmy Carter lost his job and the USA has been better ever since.
No sleep for the Repo Man.
Good. Im starting to look for a good used car. A little higher-end at a lower price is just gravy.
GO REPOMAN!
Da ja vu all over again.
Spelt wrong, Yogi forgives me.
Probably be a lot of Esclades available soon.
With rimz already installed!
Well the fly in the ointment is, if too many of these cars are repo’ed, then, even at 25%, they may not be able to get the neccessary value out of the car (the whole supply and demand thing). Sort of sounds familiar....
“The life of a repo man is always intense.”
I was looking at the link in post 39. It seems that EVERY US manufacturer has Joint Ventures with Chicom automakers. As does Europe, Japan, Korea and etc.
You offer me a typical US car for $35,000 or a comparable Chinese knockoff for $20K and guess which one I’ll take.
And if your product is overpriced beyond a certain extent for what it is then everyone becomes a credit risk when they figure it out.
Sure they make money and tons of it to boot. Look at the numbers.
Subprime loans carry interest rates which are sky high, some in the 25% range. Subprime lenders typically require larger deposits to minimize exposure in the likelihood the loan goes bad. Yet with all that, 80% of these loans do NOT go bad and all the money they are making on them easily covers the 20% who do go bad.
This is a deceiving article and doesn’t hold up if anyone reading it is familiar with the lending business for automobiles.
Of course they ALL have joint ventures, it is a requirement of doing business in that market, if not, how would the Chinese be able to steal IP & Technology, as they are entitled to do?
How much? How much?
Whatever. I’ll buy it!
This one was 12,5k. That’s with 50% tariff and 18% VAT included. Regular cab on steel wheels was 8k.
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