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Subprime Auto Loans Crushed Worse than in 2009, Auto Industry Bleeds, Knock-on Effects Commence
Wolf Street ^ | 24 March 2017 | Wolf Richter

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.


TOPICS: Business/Economy
KEYWORDS: autoloans; subprimeautoloans
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1 posted on 03/27/2017 10:34:43 AM PDT by Lorianne
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To: Lorianne

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.


2 posted on 03/27/2017 10:37:50 AM PDT by George from New England (escaped CT in 2006, now living north of Tampa)
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To: Lorianne

Maybe the Federal Reserve can buy up a couple $$ hundred billion worth of these

problem solved.


3 posted on 03/27/2017 10:39:30 AM PDT by PGR88
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To: Lorianne

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!!!


4 posted on 03/27/2017 10:39:48 AM PDT by MMaschin (The difference between strategy and tactics!)
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To: Lorianne

Let’s see how the car market shakes out after President Trump gets rid of the ridiculous mileage standards.


5 posted on 03/27/2017 10:46:24 AM PDT by blueunicorn6 ("A crack shot and a good dancer")
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To: blueunicorn6
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.

6 posted on 03/27/2017 10:49:10 AM PDT by raybbr (That progressive bumper sticker on your car might just as well say, "Yes, I'm THAT stupid!")
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To: Lorianne

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.


7 posted on 03/27/2017 10:52:01 AM PDT by sergeantdave (Cats are like potato chips - you can't have just one.)
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To: raybbr

The car companies have been designing and tooling for those restrictions and can’t change it all on a dime.


VW can. At least for their diesels. :-D


8 posted on 03/27/2017 10:52:38 AM PDT by Mr. Douglas (Best. Election. EVER!)
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To: Lorianne

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.


9 posted on 03/27/2017 10:53:46 AM PDT by AppyPappy (Don't mistake your dorm political discussions with the desires of the nation)
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To: raybbr

Gas guzzler tax could come off immediately


10 posted on 03/27/2017 10:53:48 AM PDT by TexasGator
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To: sergeantdave

I’m so old I remember when auto loans were for 24 months.


11 posted on 03/27/2017 10:59:25 AM PDT by ilovesarah2012
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To: Lorianne

No more ‘Cash for Clunkers’!
It damn near destroyed the Used Car market!..................


12 posted on 03/27/2017 11:09:33 AM PDT by Red Badger (Ending a sentence with a preposition is nothing to be afraid of........)
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To: Lorianne; All

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.


13 posted on 03/27/2017 11:19:45 AM PDT by BipolarBob (I've wasted enough time eating mushrooms and conversing with hookah smoking caterpillars.)
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To: Lorianne

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?


14 posted on 03/27/2017 11:20:50 AM PDT by Uncle Sam 911
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To: Lorianne

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.


15 posted on 03/27/2017 11:24:05 AM PDT by Vlad The Inhaler (Best long term prep for conservatives: Have big families & out-breed the illegals & muslims.)
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To: Lorianne

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.


16 posted on 03/27/2017 11:24:23 AM PDT by TheBattman (Gun control works - just ask Chicago...)
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To: AppyPappy

That is actually THE business model for the auto industry.


17 posted on 03/27/2017 11:27:12 AM PDT by TheBattman (Gun control works - just ask Chicago...)
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To: ilovesarah2012
I’m so old I remember when auto loans were for 24 months.

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.

18 posted on 03/27/2017 11:29:17 AM PDT by TheBattman (Gun control works - just ask Chicago...)
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To: ilovesarah2012
"I’m so old I remember when auto loans were for 24 months."

Me too....And, nobody had a credit card of any kind.(And, we listened to the radio evenings as entertainment)

19 posted on 03/27/2017 11:31:17 AM PDT by blam
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To: Vlad The Inhaler

Yep, and what do you want to be they will be bailed out again?


20 posted on 03/27/2017 11:32:13 AM PDT by Lorianne
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