I wrote an article eight months ago called Subprime Auto Nation http://www.theburningplatform.com/?p=40182.
I went out on a limb and speculated that if you loan money to deadbeats who have no means to pay you back there is a high likelihood that the loan might go bad. In a truly shocking development it appears the loans doled out by the US government through their subprime loan specialists at Ally Financial are going bad rapidly. When 50% of all the auto loans in the country are made to subprime borrowing deadbeats, what could possibly go wrong?
Auto sales have been juiced by the easy credit being doled out. Sales are up 10% this year. The only thing rising faster are delinquencies and auto repossessions. Can you blame the deadbeats? They get to tool around in a Cadillac Escalade or Mercedes SUV for at least a year without making payments before the repo man appears. Their credit can’t be ruined because it already was ruined.
This is the Federal Reserve/Wall Street/Obama economic recovery plan. And guess who is paying the bill for the current and future auto loan losses? I bet you know.
Subprime 2.0 – Auto Loan Deliquency Balances Rise 24% YoY
Submitted by Tyler Durden on 05/15/2013 15:16 -0400
As we warned six weeks ago, the Fed’s ZIRP side-effects have driven auto-lenders to scrape the bottom of the subprime-lending barrel once again (loans to subprime borrowers +18% YoY). It seems, based on the Fed’s latest data, that this over-exuberant lending is coming back to bite once again as delinquent balances surge 23.9% year-over-year (though optimistically Experian reflects “obviously, we never want to see a rise in delinquencies or repossessions, but… they are still lower than the recession-level rates,”). As Experian also notes today, repossessions rose 16.9% year-over-year. All this as lending volumes overall rose 9.6% to $726 billion in Q1 2013 but average charge-off amounts rose by 9.8% to $7,401 on each defaulted loan – and the worse is yet to come, as “we continue to move forward, we should start to see more increases as some of the subprime loans coming onto the books begin to deteriorate.” This will end well.