auto loans – The Burning Platform

Ally Financial Slashes Guidance As Used Car Prices Suffer “Worst Decline In 20 Years”

I think this may be the first canary in the coal mine. The entire auto sales recovery has been driven by easy money, subprime debt, and leases based on pie in the sky assumptions. Loaning money to people incapable of paying you back for $40,000 Cadillacs makes your numbers look good in the short term. Now the debt is going bad at rates last seen in 2008. Remember 2008?

The tidal wave of repo vehicles and vehicles being returned after their 3 year leases are up are driving the prices of used cars down. This is creating a snowball effect as more vehicles come off lease. The residual value calculations are wrong.

Banks, financing companies, and the automakers are all going to get hit with loans losses, leasing losses, and automakers are being forced to discount new vehicles dramatically. Profits are going to get hammered, production lines will be shut down, and workers will be laid off.

The canary is dead. I wonder what happens to all those subprime derivatives being sold to pension plans.

by Tyler Durden

For those of you holding out hope that the North American auto market is anything but a massive debt-fueled bubble on the verge of imminent collapse, you may want to avert your eyes now. For the rest of us who prefer to live in reality, as painful as it can be, today’s FY2017 earnings warning from Ally Financial offers a stinging wakeup call to auto investors.

And while Ally’s CEO, Chris Hanley, tried to downplay the company’s 2017 earnings guidance cut to “5% – 15%” on today’s call by saying that it was “generally in line with a 15% EPS growth path that we previously described to analysts and investors,” the market didn’t buy it.

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STEVE EISMAN: SMART, LUCKY, ABRASIVE & NOW ONE OF THEM

I loved Michael Lewis’ book – The Big Short – about the 2008 Wall Street created global financial catastrophe, that is still impacting the little guys on Main Street eight years after it was supposedly resolved by Paulson, Bernanke and Obama. I even wrote an article about it called The Big Short: How Wall Street Destroyed Main Street. I also loved one of the main characters in the book – Frontpoint Partners hedge fund manager Steve Eisman – a foul mouthed, highly skeptical, open minded guy who figured out the fraudulent subprime mortgage scheme and shorted the crap out of the derivatives backing the fraud, making hundreds of millions in the process.

I had the opportunity to attend a 90 minute talk by Steve Eisman last night where he discussed the financial crisis, the response by the Fed and government, and the future for the financial industry. My perception of him, based on the book and movie, was he was a cantankerous asshole who didn’t care what anyone thought about him. My perception matched what I experienced. He was dropping f-bombs, insulting the institution hosting his talk, making fun of business school students (he graduated with a liberal arts degree) and dismissing any question he found to be stupid.

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THE STUPID – IT BURNS

Two charts revealing how stupid the average American remains. Despite what should have been a once in lifetime lesson from 2005 through 2010 on the dangers of excessive leverage, dumbass Americans have been led like sheep to slaughter again by the Wall Street cabal, Madison Avenue maggots, and the mega-corporate purveyors of materialism. Wall Street is issuing more credit cards today than they did at the 2008 peak, and 90% more than they did in 2009.

The automakers, their finance divisions, and Wall Street have “sold” a new $40,000 vehicle to every Tom, Dick, and Lakesha in Amurica with subprime loans, 7 year 0% interest “deals”, and low payment leases. Now, tens of millions of these dumbasses are underwater on their auto loans. But wait. These people are so fucking stupid they NEED a new vehicle and are trading in their underwater 3 year old vehicles for another $40,000 ride. Gotta keep up with the Joneses. Just roll the old loan into the new loan and drive off the lot underwater from the get go. Simply brilliant. Meanwhile, auto loan delinquencies are soaring.

The idiocy of people taking on this level of debt once again, so they can pretend to live the good life, is mind boggling to behold by rational thinking individuals. The decay and rot of this unsustainable system is clear and the stench from our fetid putrefying carcass of a faux democracy is overwhelming.

Two quotes come to mind when you see mindless Americans in action in this great democracy of ours.

“Democracy is the theory that the common people know what they want and deserve to get it good and hard.” – Mencken

“Think of how stupid the average person is, and realize half of them are stupider than that.” – Carlin

ABOUT THOSE “STRONG” RETAIL SALES

I get tired discrediting the MSM narrative of economic recovery, but I feel it’s my duty to set people straight. There were blaring headlines about the much better than expected retail sales in April. I find it humorous watching the government report this drivel and the MSM unquestioningly regurgitating it to the ignorant masses as retailer after retailer reports absolutely atrocious results.

Let’s dissect the bullshit report from the Census Bureau. They said retail sales went up 1.3% in April over March. Unless you delve into the actual report, you don’t know this is a seasonally adjusted number. On an unadjusted basis retail sales fell by 2%. But, for the sake of consistency I’ll use their adjusted numbers.

Total retail sales rose from $447.8 billion in March to $453.4 billion in April, an increase of $5.6 billion. That’s a 1.26% increase. Let’s breakdown our increase.

It seems $2.9 billion of that increase came from auto “sales”. That’s 52% of the total retail sales increase. So, desperate auto manufacturers with inventory piling sky high on their lots are doling out more subprime 7 year loans, 0% down leases, and offering massive rebate incentives to rid themselves of inventory. This is supposed to be some sort of positive development proving the consumer is back?

Remember those low gas prices? It seems the 30% increase in prices has boosted retail spending at gas stations by $700 million in one month and $1.7 billion over the last two months. Gas station sales increases account for another 13% of the monthly increase. So, 65% of the jump in retail sales is accounted for.

Another $550 million was produced at grocery stores, as food prices have jumped 20% since the beginning of the year. Paying more for less food is surely a sign of economic progress. Food is another 10% of the increase.

Lastly, the death of bricks and mortar retailers is further confirmed by the $900 million increase in on-line sales, as department store sales fell again.

In conclusion, the “awesome” increase in retail sales was essentially due to inflation in energy and food, with debt financed “renting” out of overpriced vehicles as the kicker. Sales at discretionary retailers like restaurants, sporting goods, electronics, and furniture stores were either flat or down. The MSM bullshit is a lie.

CONSUMER DROWNING SORROWS AT THE BAR

Month after month I watch as the MSM mouthpieces try to spin declining consumer spending in a positive light. They are practically out of excuses. They are befuddled, because month after month they report “awesome” job gains and can’t understand why all these gainfully employed Americans aren’t buying shit they don’t need like they used to. These faux journalists, spouting propaganda for their ruling class bosses, are willfully ignorant of the fact the job gains are in low paying part-time jobs and the fact that Obamacare and record high rents are sapping any discretionary income households would use to buy stuff.

Despite the propaganda from the media and happy talk from the Liar-in-Chief, the country is currently in a recession and the Fed has no ammo to fake another recovery. We are going down and going down hard. When 70% of your economy is based on Americans buying shit they don’t need from China on credit cards, a dramatic slowdown in consumer spending equals recession. When sales actually fall from November to December during the holiday season, you are in recession. We’ve arrived.

The December report was a disaster and portends horrible retailer results coming down the road. More ghost malls coming to your neighborhood. The annual results were pitiful, with the more recent months even more dreadful. So after adding 10 million jobs, according to Obama, spending declines? They must be great jobs.

I think the results are even worse than portrayed in the results presented by the Census Bureau. Retail sales grew by only 2.2% in 2015 versus 2014. That is significantly less than the real inflation being experienced by real people, so on an inflation adjusted basis they fell. Even the 2.2% increase is artificially pumped up by the Fed induced auto debt fueled boom in car sales (or long-term rentals in reality). The 7 year 0% auto loans, subprime auto loans to deadbeats, and record levels of auto leases have created fake demand that will end in tears when the defaults skyrocket. If you remove these fake sales, then total retail sales are up a pitiful 0.9% over 2014.

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Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years

Submitted by Tyler Durden on 01/08/2016 15:20 -0500

Moments ago, the Fed released the latest, November, consumer credit data: it was not good. Rising by just $13.95 trillion, it was a big miss to the $18.5 trillion expected, and below the $15.6 billion downward revised increase in October. In fact, three months after the historic surge in September to the highest print in the revised series, total consumer credit has tumbled to the lowest since January.

But the big problem was not in the total data, but in one of the two key component data sets.

Recall that a few days ago we noted something very disturbing for US auto makers: for all the hoopla around the auto sales number, US domestic car sales had actually dropped to a 6 month low, missing estimates by the most since 2008.

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The Four-Wheeled Bubble

Guest Post by Eric Peters

Bubbles are always obvious … in retrospect.

Here’s one you might not see coming.

The Car Bubble.

People are taking out eight-year car loans.

This is – or ought to be – alarming. The automotive equivalent of the zero-down, no-doc, adjustable rate mortgage on a $500,000 McMansion circa 2004.

You know – just before the housing bubble popped.

New car loans used to be 36 months (three years) and then 48 months (four years). Back when the economy was sane.

Today, the typical new car loan is 72 months (six years). This is almost double the formerly typical length of a new car loan.

But even that is not – apparently – enough to keep the music playing.

Enter the eight-year loan.

Which might be ok, if cars were not appliances.

Very expensive toasters, basically.

Continue reading “The Four-Wheeled Bubble”

LTV 137% – In Unprecedented Development, Lenders Now Take Record Losses On Every Used Car Loan

This entire teetering edifice is built upon a towering foundation of un-payable debt. Look no further than the story below. Bankers making loans that will guarantee them future losses because they know the Federal Reserve and puppet politicians will bail them out at your expense. The ignorant masses will never open their eyes because they live in a land of delusion and like driving Cadillac Escalades while the party continues.

Submitted by Tyler Durden on 07/01/2015 12:28 -0400

This wasn’t supposed to happen.

With the US consumer hunkering down in 2015 and barely spending more than in the comparble period last year, the only silver lining had been auto sales driven almost entirely by access to cheap credit; in fact, as the chart below shows while revolving credit has barely budged from its post-crisis lows with consumers still failing to fall for the “recovery” narrative, Uncle Sam’s zero cost loans which are now reaching well over 6 years in average duration have provided a generous support for the US auto industry. In addition to the bubble in student loans, car loans have been the only confirmation that the US consumer – that driver of 70% of the US economy – is still alive.

So in a world in which one can buy cars now and worry about the costs later, much much later, auto sales should have been soaring as they have been in recent years, right?

Well, not for GM, which moments ago reported a surprising drop in June auto sales, which declined 3% M/M to 259,353 from the prior month, driven by an 18.1% plunge in Buick sales, with Chevy and Cadillac also posting declines, despite expectations of a 3% headline increase. This even as GM announced pickup deliveries were up 33% with the Silverado up 18%. Curiously, GM’s main domestic competitor, Ford, reported a 9% drop in F-Series sales in June.

Continue reading “LTV 137% – In Unprecedented Development, Lenders Now Take Record Losses On Every Used Car Loan”

HEADLINES vs REALITY

This is the headline on Marketwatch this morning:

Consumers boost spending by most in six years

The article then goes on to make the false case that all those new Obama jobs are allowing consumers to spend like there is no tomorrow, again. One problem. It is complete and utter bullshit. The government propaganda release buries the FACT that half of the entire increase is due to auto “sales”. Now that is funny. They actually call the rental of autos for 7 years at 0% interest a sale. Over one-third of these “sales” are going to subprime deadbeats. Another third are actually leases. And the last third are the 7 year loan “sales”. Nothing like some more mal-investment created by the Fed and their ZIRP/QE fiasco. So jobs have nothing to do with this surge – low payments and high risk borrowers are the reason.

Then we get to the FACT that the rest of the spending was driven mainly by a 4.72% surge in spending on Energy goods & services. Yep. Gasoline prices have surged by 40% in the last 5 months, so you are spending a lot more for gas. That has a lot to do with those new Obama jobs, right? In reality, spending excluding energy spending was the lowest since 2011. Sounds a little different than the Marketwatch headline, doesn’t it?

So the reality is that senior citizens are getting 0.25% on their savings while paying a lot more for energy and food. Therefore, they have to dip into their dwindling savings to survive during this great economic recovery. The Fed keeps pumping the bubble with 0% interest rates and Wall Street/Auto Industry machine keeps doling out autos to anyone that can fog a mirror. The never ending monthly payments for the ignorant masses never cease. The faux journalist dolt at Marketwatch worries that the 5.1% savings rate is too high. He cheers on spending and scorns saving. This is what passes for economic journalism today.

So there is your daily dose of reality versus fantasy. Now I’m off to the beach.

GOING LONG EASY MONEY

We are setting all kinds of records these days. These records explain the fraudulent auto recovery. The pundits breathlessly proclaim that auto sales approaching 17 million proves the consumer is back and the auto industry has recovered. Let’s examine a few facts:

GM stock hasn’t gone anywhere in the last two years. It is lower than it was in 2011.
GM profits have fallen for three straight years, from $9 billion to less than $4 billion.
Ford stock hasn’t gone anywhere in the last two years. It is 20% below its level in 2011.
Ford had the lowest profit in the last five years in 2014, down 60% from 2013 and below the profit in the terrible auto year of 2010.

Annual auto sales in 2010 and 2011 were in the 11 million to 12 million range. In 2014 sales were close to 17 million. How could the two biggest automakers in the country make far less profit? Maybe its because they have just been stuffing dealers lots with millions of cars, jacking subprime loans to deadbeats who won’t pay them back, and luring people with 7 year 0% loans.

Here are the glorious records set in 2015 so far:

The average new car loan reached a record 67 months. Anyone who attempts to trade in the vehicle within the first five years will be underwater on their loan.
The percentage of 6 to 7 year car loans shot dramatically higher to an all-time record of 29.5%.
Long-term used car loans set an all-time record.
The amount financed reached a new all-time high of $28,711. If you take a 7 year loan, your loan balance after four years would be $13,000. If the auto was originally priced at $30,000, it will have depreciated to $11,000 after four years on average.
The percentage of autos leased hit an all-time high of 31.5%. So, the 17 million auto sales are really 12 million sales and 5 million three year rentals. As these leases come due, the prices of used cars will be plummeting.

The Keynesian dimwits see this as a huge positive. A Federal Reserve easy money induced bubble is just what we needed. Anyone with a functioning brain can see that borrowing more, leasing and extending the length of financing are signs of consumer weakness. Most people need a vehicle to survive in this world. If they are poor, they are paying 13% interest on their subprime loans. Middle class families have to extend the term because they don’t have enough monthly income to payoff a loan over the traditional 48 month term.

There is nothing to celebrate about auto sales hitting 17 million. The automakers are already seeing profits plunge, We’ve been here before. We are at or near another peak. Peak idiocy. Peak auto loan debt. Peak delusion. The plunge is coming. Will you bailout GM again?

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BREAKING BAD (DEBT) – EPISODE ONE

“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” – Fed chairman, Ben Bernanke, Congressional testimony, March, 2007

“Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.” – James Grant, Grant’s Interest Rate Observer

The Federal Reserve issued their fourth quarter Report on Household Debt and Credit last week to the sounds of silence in the mainstream media. There were minor press releases issued by the “professional” financial journalists regurgitating the Federal Reserve’s storyline. Actual analysis, connecting the dots, describing how the massive issuance of student loan and auto loan debt has produced a fake economic recovery, and how the accelerating default rates in auto loans and student loans will produce the next subprime debt implosion, were nowhere to be seen on CNBC, Bloomberg, the WSJ, or any other status quo propaganda media outlet. Their job is not to analyze or seek truth. Their job is to keep their government patrons and Wall Street advertisers happy, while keeping the masses sedated, misinformed, and pliable.

Luckily, the government hasn’t gained complete control over the internet yet, so dozens of truth telling blogs have done a phenomenal job zeroing in on the surge in defaults. The data in the report tells a multitude of tales conflicting with the “official story” sold to the public. The austerity storyline, economic recovery storyline, housing recovery storyline, and strong auto market storyline are all revealed to be fraudulent by the data in the report. Total household debt grew by $117 billion in the fourth quarter and $306 billion for the all of 2014. Non-housing debt in the 4^th quarter of 2008, just as the last subprime debt created financial implosion began, was $2.71 trillion. After six years of supposed consumer austerity, total non-housing debt stands at a record $3.15 trillion. This is after hundreds of billions of the $2.71 trillion were written off and foisted upon the backs of taxpayers, by the Wall Street banks and their puppets at the Federal Reserve.

The corporate media talking heads cheer every increase in consumer debt as proof of economic recovery. In reality every increase in consumer debt is just another step towards another far worse economic breakdown. And the reason is simple. Real median household income is still below 1989 levels. The average American family hasn’t seen their income go up in 25 years. What they did see was their chains of debt get unbearably heavy. Non-housing consumer debt (credit card, auto, student loan, other) was $800 billion in 1989.

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