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.
One of my favorites, Johnny Dollar
Two words: Uber and Lyft.
Once people realize they can walk away from loan / insurance / maintenance and shift those expenses to the Uber / Lyft owner/driver they did.
This problem will self-correct.
For those dumb enough to invest in this crap, I have no sympathy.
“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”
Except for those stubborn Toyota Tacoma 4WDs.
You can buy brand new, loaded for $38k
3 years old with 60K miles...$34k.
You can buy a 3yrs old F-150 4WD with 60k miles for $34k.
It’s just not a rational market.
Then they can lift design mandates for washing machines that actually wash and get clothing clean in a reasonable amount of time, again let the user control the machine (no locks; no pre-set water level and temperature;ability to start/stop anywhere in the cycle and real, actual one-piece agitators that do the real job; (no flimsy dog-ears, please).
Do not tell me that getting rid of the agitator and the transmission is in my best interest. I can decide. Do not tell me I need a latched or locked machine ‘for the children’, when I have none at home. Do not decide the temperature and height of water I need per load. I know about the environment and what hot water costs and when I need it. Do not mandate I must jump through hoops in order to add to a load anytime in the cycle. Do not reduce the rinse cycle water level and add a mandatory 10-second super agitation at the end of that cycle. With any heavy load, this just jams all the wet clothing to one side and unbalances the machine.
Engineers, I cursed you every time I needed to do what was easy in the past and impossible now with the expensive and pitiful new washing machine I returned. Because of these mandates and your brilliant interpretations of them, I had to search for a top-loader with manual settings, have it special ordered and I still had to hack the latch (thankfully, not a lock). Because I have specific needs, I also had to hack the agitator. Go ahead and *innovate*, just don’t pridefully announce that all machines are now digital and lack agitators and wash (HA!) in a quart of tepid water. Allow both designs onto the market and consumers will choose what’s best for each of us.
Can those services get you to work, 25 miles away, by 0730 every morning...no matter what?
Great post!
I bought a used Camry. It is better than many new cars I’ve owned. The thing is bullet proof, an anvil.
Bought a 2016 Honda CR-V last year. Wife and I have excellent credit. Was going to pay in full, but they offered 0.9% for 60 months. They’re basically lending me money for free.
I’m mostly concerned about these guys:”yield-hungry institutional investors”.
I hope none of those guys have wormed their way into my portfolio.
“”” Gas guzzler tax could come off immediately.”””
Right, but the cars wouldn’t change from the current design and production for a couple of years.
“Right, but the cars wouldn’t change from the current design and production for a couple of years.”
You underestimate the effect of emissions on the current tunes.
These tunes can be changed overnight.
I can get a Ford Factory tune that will bump my V8 by 60 hp while remaining 50 state legal.
Drop CAFE standards and that tune could be on the showroom ASAP.
Reduce emissions standards and get even more.
“Bought a 2016 Honda CR-V last year. Wife and I have excellent credit. Was going to pay in full, but they offered 0.9% for 60 months. They’re basically lending me money for free.”
It still came out of your pocket. Your purchase subsidized the loan.
In that sense, everyone's purchase subsidized the loan, as the purchase price was hammered out before the payment terms came up.
I know a woman that trades her car in every year because she doesn’t want any maintenance issue with a vehicle. She just traded a 2015 Dodge Charger for a 2017 Dodge Durango. She owes $47,000 on the Durango which is a $35,000 vehicle. Insane.
I read a study that said if you drive beater your whole workikng life and invest the money you’d have spent on new cars every 3-5 yrs a person could retire 10 years earlier than otherwise would have been expected. We work to drive and not the other way around.
My sister buys a new car every time she goes to the dealership for her free oil change. She bought a used truck to haul her camper because she broke up with her BF who had a truck. They are back together.
So she pays $525 a month for a used truck and makes $25k a year. She told me “You have to have a car payment”. I told her I didn’t have one.
If she gets sick and can’t work(PT wage), she loses the truck. Thinking isn’t big in my family.
Not if you negotiate the price of the car BEFORE you talk about financing.
Speed Queen. You are welcome
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