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.
That’s funny.
2002 Chevy Venture
2004 Chevy Impala
2006 Pontiac Torrent
All owned free and clear. I have car payments. Just the occasional $1000 or $500 repair. I did have one leased car a 2014 Cruze that I turned in a week ago. It had a little damage and they were pressuring me to purchase it. I could have paid cash but said no because with two boys 20 and 22 dropping the Cruze saved me 191/month in Auto Insurance costs. And I say all that with nothing but a mortgage, some Student Loan debt and plenty of cash in the bank to buy whatever car I wanted, but I’d rather have a safety net.
I’m driving these suckers into the ground.
“They’re basically lending me money for free.”
Ummm..no. You bought a vehicle and they have you on the hook for the debt. If anything goes wrong, they have it set up to nail you. If you miss a payment or if they process a payment late, the .9% will become something much higher.
The 0% rate loans are designed to attract people who might miss a payment. Pay early and often to really screw them. :)
Yikes! That is some scary stuff. I haven’t bought “new” vehicle in decades. I shop for 3-5 year old models, they have served me well.
That is a telling point. Now if I could just find the time to retire!
Cash for Clunkers encouraged people that could not afford a new car to buy one anyway. I think that put the idea out there that “I deserve a new car and I can save the planet” when reality is the new car has to be paid for at some point.
Cash for Clunkers also raised the cost of used cars to the point many could not afford to buy them either.
When it goes up the tower, the dealer can walk on the deal. Most of our local dealers are no haggle now, which I like because I pay cash. You get a good deal because they tote the note.
My son and I went to look at a used car for him and were told we had to make an appointment. The showroom was packed with buyers with bad credit being processed.
Best part, we had to drive past the repo lot to get to the cheap used cars. Irony.
2000 Ford ZX2(23 year-old)
2005 Jeep GC
2003 Infiniti G35
2010 Ford Fusion
2000 Ford F-150(21 year old)
1986 Ford Thunderbird(Bricked in the garage)
I’m in insurance Hell.
Her truck was 3 years old when she bought it. My mother died in 2013 and she is on her 3rd vehicle since then.
The drum is too small for me and the agitator is pathetic. I found a GE that meets my requirements and has stood up to heavy commercial usage for 4+ years, so far. Only repair (under dealer warranty-—they know me)was a new timing switch. I usually destroy washers in 5 years, so I have hope for this one. I need the manual transmission and that, of course, is the weak point. And they always fail in January with horrid weather and peak usage.
OTOH, my Speed Queen electric dryer is a gem. Going on five years, heavy usage, some of it unauthorized and one temp setting chip or wiring failed and was replaced.
I have produced a commercial felt product for over 30 years. My husband has a massage practice, meaning a load of sheets daily. Used to be able to get heavy duty commercial washers and dryers reconditioned for $100 each and my husband could reconfigure and repair them himself. Next best thing is my small town dealer offers me their warranty for 7 years and the repair man is used to my requirements. The dealer will even go to bat for me with the manufacturer.
I just spent a week helping my daughter with my grand baby after she had to have dental surgery. She has one of those crazy washing machines. I truly wanted to shoot it for all the reasons you stated. The worst is how long it takes to do a load, craziness. I despise those washing machines and vow I will never own one myself. I would rather go back to a wringer washer than use the idiotic new ones.
2009 was a great time to buy a new or relatively new gas guzzler. Everybody was still shell shocked from the financial crisis and high gas prices. High mileage subcompact cars were hard to come by in both the new and used market if my memory serves me correctly. I bought my current car with an $8K rebate. I remember some SUV's with rebates well over $10K..
GE
GTWWN2800D0WW
Top loading/manual/white
Cons:
Has a magnetic latch (not a lock). I need to keep watch at the beginning of my processing and stop the cycle, remove the item and sometimes repair, so I need an open lid. The latch is screw-set, so we undid it from the underside of the lid and used Gorilla tape over the magnetic receptacle on the washer. Works well. It will loosen and need to be re-positioned/re-taped occasionally, but it’s not a big deal.
Pre-set 10-second super agitation at the end of each cycle, including rinse, which is pre-set to be low water level. You need to watch it, stop the washer and redistribute the load.
Wimpy extraction, but, being manual, you can just do a 2nd extraction.
Will ONLY rinse on cold. You need to reset to a wash cycle to *rinse* hot or warm, then manually advance to Drain & Spin.
Has doglegs on the agitator. My husband added braces each side of the dogleg vanes at the base of the agitator and pop-riveted them. The agitator is not removable without a special tool. We were going to order the tool, but he was able to work inside the washer drum with the agitator in place. The pop rivets can have sharp edges, so I smeared each side of each one w/JB Weld Kwik Set. Every once in a while, the JB Weld pops off and I can reapply w/a skewer.
Not perfect, but for my needs, it comes as close as I can find.
Does this mean cheap used autos will enter the market?
I am guessing “ no” because most of these loans are made on 3K junkets. Anybody know?
“Not if you negotiate the price of the car BEFORE you talk about financing.”
Car dealers don’t give free loans.
I called my bank from the sales desk and negotiated 1.9% for 48 but I told the guy I can get .9% for 60 from my bank. Unethical? Maybe. So what these people are crooks. You have to be a dick.
“The last new car I bought in 2012 I negotiated the price. Then I asked for .9% for 60 months. I got it.
The loan was thus part of the negotiated price ...
Buying a new car is DUMB. My wife and I clear over $175k a year. Not trying to brag. I drive a 2001 Toyota Tacoma that I bought used. The family car is a 2013 Honda Pilot we bought in 2016. It had about 34k miles on it. Paid cash, vehicle is basically as good as new. Haven’t had a car payment since 1997.
I have funny conversations with my neighbor. They were getting some major improvements done to their house and are also looking at schools for their oldest child who will be a senior in HS next year. She was complaining about how expensive everything is, money was tight, hoping their kid can get a scholarship, etc. I just chuckle and shake my head as I look at their cars in their driveway : a Lexus SUV, and a Range Rover. Dumb.
I negotiated the price FIRST. We shook hands on the price before financing was discussed. You are not paying attention.
“I negotiated the price FIRST. We shook hands on the price before financing was discussed. You are not paying attention.”
How do you know you negotiated the BEST price? You don’t.
The negotiations are never over till you finalize it with your signature on the bottom line.
I made an offer of 15% below the sticker ($25.5K sticker). No trade in either. Take it or leave it. Also I want no dealer prep or any non sense add ons. At first he didn’t want to show his floor boss the offer but I said I’m walking if he doesn’t and he has my number. Well to his surprise the deal was approved. It was only AFTER that did financing come up.
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