The MSM was crowing about the “fantastic” auto sales this morning and were using it as the excuse for the stock market ramp today. They were ecstatic that vehicle sales had reached 16 million for the first time since September 2007. I’d be remiss in not reminding you that the stock market peaked in the following month and proceeded to fall 50% by March 2009. A little perspective may be in order. From 1998 through 2007 vehicle sales ranged between 16 million and 21 million. Vehicle sales were at this same level from 1984 through 1990. Vehicle sales were at this same level in 1978 during the stagflation 70′s. As a reminder, the population of the U.S. in 1978 was 223 million. It was 245 million in 1988. It was 281 million in 2000. The population today is 316 million. The per capita vehicle sales comparison is as follows:
1978 – .072
1988 – .065
2000 – .064
2013 – .051
It seems that vehicle sales per capita are 29% below 1978 levels and 21% below 2000 levels. But we can’t let facts get in the way of a good MSM storyline designed to convince the ignorant masses that all is well with our debt saturated economy. So, not only are per capita vehicle sales significantly below long-term averages, but today’s pitiful level has been produced by government subsidized easy credit. There is no legitimate demand for new cars.
A critical thinking individual might wonder why vehicle sales would be back at 2007 levels when miles driven continue to fall and are well below 2007 levels. If Americans are driving less, why would they need new cars? It must be because they are flush with cash from all those new jobs being created and the rising household income.
One little problem. It seems that real household income is still 8% below the level reached in 2008. If households have less income, energy prices are at all time highs, with even the government manipulated CPI up 12%, where are consumers getting the funds to buy all these vehicles?
If you guessed that your government, the Federal Reserve and Wall Street have conspired to create a short-term recovery based upon easy credit doled out to deadbeat subprime borrowers, you’d be right. It seems Ally Financial and the captive auto maker finance arms are back to their old tricks used to game sales prior to the 2008 collapse. Loaning money for seven years to known defaulters is a brilliant business strategy when you know the American taxpayer will clean up the mess when the billions in losses hit. The facts are there for all to see. The looming losses beckon.
- A record 84.5% of people acquiring cars in the second quarter financed the deals with loans or leases, Experian said on Tuesday. That is up from 79.7% in 2008.
- The shifts came as average credit scores for new car loans from all lenders fell for the fourth consecutive year.
- U.S. banks made 36% of their car loans to subprime borrowers in the second quarter, up from 34% a year earlier, according to data from Experian.
- On nearly 20% of new car loans, lenders take the additional risks of allowing borrowers six to seven years to repay.
- Total U.S. outstanding auto loans rose to nearly $751 billion, up 10% from a year earlier.
The channel stuffing by the big three have piled inventory on the lots of dealers across the land. The plan has lured in most of the dupes. With interest rates rising and auto loans outstanding near all-time highs, the game is getting long in the tooth. The American consumer has no savings, declining real income, and rising costs. If the government will just let students use their loans for cars, they can keep this scheme going.
Luckily, Wall Street has revived the derivatives scam by packaging subprime auto loans and selling them as investments for little old ladies and pension funds. Bloomberg lays out the coming subprime auto loan crisis:
Subprime lenders lured into the market by low financing costs during the past three years now face being pushed out as rates reverse, according to Moody’s Investors Service. Funding costs are climbing as the Federal Reserve considers reducing $85 billion of monthly bond purchases that have steered investors to riskier, higher-yielding debt. Total sales of securities linked to subprime car loans have surged 24.4 percent to $14.7 billion in 2013 from a year earlier, according to Deutsche Bank AG. Issuance has climbed from $2.4 billion in 2009 and may approach the $20.9 billion sold in 2007.
As the MSM crows about low default rates (because billions of bad loans were written off and foisted onto the backs of taxpayers), auto loan delinquencies have just leaped by 24%, the highest rate since 2006. I’m sure it will be different this time.