Thank God there are no consequences to doling out long term loans to people with bad credit in order to boost sales for a rapidly depreciating piece of machinery. This strategy never turns out bad. Right?
The size of loans for new and used cars is at an all-time high. It is now $27,500. The average monthly payment for a new vehicle, also increased $10 to $467 in Q2 2014. Over 20% of the new car loans in the last year have been to subprime deadbeat borrowers. Over 50% of all used car loans in the last year have been to subprime deadbeat borrowers. Of all new vehicles sold in Q2 2014, leases accounted for a record high 25.6 percent, up from 23.4 percent the previous year. This sure sounds like a healthy thriving auto market.
As usual, there are consequences to every dumbass action. The MSM will downplay the rising risks and the rapidly rising bad debts until the entire clusterfuck blows up “unexpectedly”. Loaning deadbeats $20,000 to $40,000 for a vehicle that depreciates by 10% when you drive it off the lot when they have no means to make a $300 to $500 per month loan payment always ends well. With loan to value ratios of 125%, repossession doesn’t pay the bills. The cracks in the dam are clearly evident. It’s beginning to spring leaks. The deluge is yet to come, but it is coming.
The total balance of loans that are 60-days delinquent has increased by $859 million since Q2 2013, while the balance of 30-day delinquent loans has increased by $2.8 billion from a year earlier. The overall automotive repossession rate saw a significant increase in the second quarter of 2014, jumping more than 70 percent to 0.62 percent from a year earlier.
I predict booming business for the repossession industry over the next three years.
U.S. consumers turn to auto loans at a record rate
NEW YORK
A group of Chevrolet Camaro cars for sale is pictured at a car dealership in Los Angeles, California April 1, 2014.
Credit: Reuters/Mario Anzuoni
(Reuters) – A record number of U.S. consumers are taking out loans to buy cars, especially those purchasing used vehicles, according to data released on Wednesday.
In the second quarter, 85 percent of new car purchases and 53.8 percent of used car purchases were financed, according to data from Experian Plc (EXPN.L), an information provider.
That was up 0.5 percentage points and 0.9 percentage points, respectively from the same period in 2013.
Additionally, the size of auto loan amounts and monthly payments continued to rise, especially for used cars. Since the second quarter of 2013, the average used vehicle loan rose 1.9 percent to $18,258 and the average monthly payment on such vehicles rose 1.1 percent to $355, both all-time highs.
“More and more consumers, especially those that are credit challenged, are turning to the used vehicle market as a viable option to purchase their next car,” said Melinda Zabritski, senior director of automotive finance for Experian, in a statement.
Banks were the largest lenders to consumers buying used cars, financing 35.6 percent of all such purchases, or 0.8 percentage points less than the second quarter of last year.
In recent years banks have begun to focus more on the used car market as automakers’ in-house financing arms came to dominate the new car market. Such “captive” finance companies made more than one out of every two new car loans in the second quarter, according to Experian.
Regulators have become more concerned with banks’ willingness to lengthen terms on car loans, lend to borrowers with lower credit scores and give out loans that are larger than vehicles are worth.
In addition, the U.S. Department of Justice has started investigating subprime auto loans that companies such as General Motors Co’s (GM.N) auto financing arm and Santander Consumer Holdings USA Inc (SC.N) have made and securitized since 2007.
But at least in the second quarter, the share of both new car and used car loans that went to borrowers with subprime credit scores declined, according to Experian.
“Lenders are still showing cautionary signs when lending to the subprime market and keeping their risk at manageable levels,” Zabritski said.
Wells Fargo & Co (WFC.N) remained the largest U.S. auto lender in the second quarter with a market share of 5.75 percent, down from 5.89 percent a year prior.
Capital One Financial Corp (COF.N) surged past JPMorgan Chase & Co (JPM.N) to become the third largest U.S. auto lender after Ally Financial Inc (ALLY.N). The McLean, Virginia-based bank’s share of the used car market rose from 3.77 percent to 4.20 percent.
“…In addition, the U.S. Department of Justice has started investigating subprime auto loans that companies such as General Motors Co’s (GM.N) auto financing arm and Santander Consumer Holdings USA Inc (SC.N) have made and securitized since 2007….”
That is freaking RICH! Ally Financial is GM’s “auto financing arm,” Ally is, as far as I know, still virtually owned by the Federal Government.
The UAW is a SOLID democratic voting block, even as their pay, benefits and jobs, fade.
My guess is this Santander Consumer Holdings is threatening GM/UAW and Ally.
Or, is the DOJ going to levy fines against a company that is basically a federal entity, thus levying the charge on the very same taxpayers they are allegedly protecting?
Wow, and the majority still think most things are run above board, with our best interests in mind, and fairly. Despite all evidence to the contrary.
TE
The government spun Ally off to the unsuspecting moron muppets before the billions in bad debt came due.
Has anyone seen this video…
http://pro.moneymappress.com/MMRBSSH39/PMMRQ845/?iris=254412&h=true
Jim Rickerd
Have you ever noticed that SO many of the people claiming to be poor have cars? Old cars, to be sure, but cars? Have they ever thought that that car is why they’re poor?
Me thinks they need to find a way to do without one or their situation will be worse.
Mike, I noticed that cars impoverish people long ago, in the 80s, and decided to live somewhere where I could easily dispense with my 3000 lb. money-guzzler.
I had just unwillingly sprung for another car, after my 12 year old Buick, purchased used from a relative, was beginning to be too unreliable and trouble-prone to rely on to get me to work at bizarre hours. I needed a car as I lived in a very car-dependent city and the public transit did not operate during the hours I needed to go to work.
It seemed to me that cars, car loans, and the suburban lifestyle that mass car ownership created, that is the most wasteful way of life ever devised, are the reasons most Americans were, then and now, the reasons most Americans are perpetually broke. I am a baby boomer and cannot remember a time in my life when most of the adults around me weren’t staggering under the load of a car loan. I took the smallest loan on the least expensive car I could get by with, and resolved to save more money. I last owned a car in the mid-80s and never was I so glad to unload a possession as I was my car.
A car does not have to impoverish anyone … if people just stopped being idiots. You don’t need a late model fancy shmancy car …. just basic transportation. Learn how to shop.
Took me all of 3 minutes to find this car in NY.
2003 Taurus — 39,000 miles — “Buy It Now” for $3450.
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http://www.ebay.com/itm/Ford-Taurus-4dr-Sdn-SE-S-super-low-miles-39000miles-39000miles-39000miles-runs-great-warrantee-/251621624466?forcerrptr=true&hash=item3a95d14a92&item=251621624466&pt=US_Cars_Trucks
Fuck cars. We are now in our 11th year without one.
But I do have a delightful story of our last car.
In 2001 I walked into Ford dealership in Dallas Texas to buy a car. I had a good job and I knew I wanted a Ford Focus with NO raz-matazz, especially all that power window/heated rearview mirror/power seat foolishness. Just a car.
The dealer took me out on the lot and tried every manner of upsell. I found a stripped down basic Focus with no electronic crap. I said I’ll buy it right here right now, let’s write out the contract. He went back to his little office doing all kinds of magical things an returned with a bunch of paperwork. He said my credit score was good and that I could drive the car away.
I asked him what my credit score was (I was 48 years old).
He patiently explained it to me and upon request he showed it to me. I saw that mine was 820 and asked if that was good? He snickered and said yes. I drove the car away after haggling with their finance department which tried to sell me an adjustable rate loan – which I refused. I also refused to roll the tax into the loan, fuck all I’m not taking out a loan on taxes, I paid the tax outright.
Fast forward 2 years when life changed drastically. We moved overseas, I needed to sell the car. No buyers for the loan payoff amount, I can’t sell it for what I owe. So I drive the car to the airport hotel and call Ford. I tell them I’m leaving the county in two days and they can have their car back as I cannot take it with me. A whole lot of arguing goes on.
Finally we fax a bunch of documents back and forth, me from the hotel, they tell me to leave the car in the hotel parking lot with the keys inside, so I did. And then I flew away.
For years they tried to ding me for the payments, even though I gave them the car and they sold it, they still wanted more money! Fuck you. They filed all kinds of liens and shit but what do I care, I’m 10,000 miles away. I’m gone (and I took the cats too).
That has long since dropped off my credit report. Patience and perseverance pays. Moving overseas helps too.
Fuck cars. We’ve never had another one in any country. Cars are nothing but a liability ball and chain.
But that also illustrates how far we have come into the grips of the banksters in the last 15 years. Previous to that, I HAD NEVER HEARD OF A FICO SCORE. Never.heard.of.it. had no idea it existed. Now our lives in America now depend on it, including the ability to pass a backround check in order to get a job.
They have rigged the game to screw us 15 ways from Sunday and nobody gives a shit. Gotta have a car, gotta have credit, gotta have a FICO score. Or live under a bridge without a job forever more.
What_happened_to_my_country????????
“Fuck cars” —– whatever
How? I assume via the tail pipe?
Your statement is unrealistic …. although you and Chicago999444 seem to have mastered not needing cars.
The rest of us aren’t so lucky. Should Admin WALK to work via the 30 blocks of squalor? Maybe he should be property within walking distance! I need to go to my parent’s house … sometimes with virtually no notice. They live 7 miles away. There is no bus service, or rail, or even a taxi service in this town anymore. I guess I should walk or ride a bike … which would be quite difficult when we have snow storms?
A country that’s 3,000 miles by 1,500 miles … well, you’re gonna need a car. No getting around it.
BTW, I loved the way you stuck it to Ford!
I have an old 99 accord on its second engine. It looks good, except for some of the paint on the roof is starting to fade. The interior is good though. I keep fighting the urge to buy a newer car. I’d never buy a new one. There’s plenty of very nice accords, subarus, toyotas or focuses for around $15k. A friend of mine just bought a used lexus and has a monthly nut of $450 plus ins. He probably shouldn’t have bought something like that. They have debt they could have paid and not in great financial shape. But I guess people just wanna feel like the rich and famous do. Propaganda works. People make poor choices, but always have a “reason” to justify it.
Cars do not impoverish people any more than guns kill people.
Although I have other, nicer cars, my daily driver is an 86 Toyota 4Runner. The body looks like shit because the previous owner rolled it twice while four wheeling. The body was repaired on the cheap and moisture caused rust to set in but mechanically the car is sound and reliable with 321,000 miles on it now. I paid $1500 cash for it in 99. I have not run the numbers for a couple of years but I’d bet it still costs me under $1000 a year to maintain. That includes insurance and everything except gas.
If I was inclined to do so I could easily upgrade my car every year or two without going into debt. Figure out how much car payment you can afford and then start paying that to yourself while driving your current car. After a year or two sell your car and add that money to the car payments you have paid yourself and buy a better car. Continue to pay yourself the car payments and sell and upgrade every couple of years and before long you’ll be driving new cars paid for with cash.
Stoopid is what impoverishes people, not cars. Almost everyone I know that has money, drives older cars.
IS – the people I know with money drive nice cars – all of them, without exception.
Here is the deal – the people I know who WANT to have money drive inexpensive cars.
The people I know without money, and who will never have money, also drive nice cars. Those folks will pay a high price for their stupidity.
I know OF plenty of rich people who drive nice cars but most of the ones I personally know drive older cars. They do have a nice car or two but for daily drivers they get around in old cars and trucks. Of course most of the folks I know with money earned the old fashioned way.
About that 2003 Taurus with only 39,000 miles for $3450….. how many times has the odometer rolled over on that thing? I’m willing to bet that that bucket has more like 139,000 miles on it.
Not the car I want to be in on I-88, 30 miles from home, when it is 10 degrees below and AAA has a 4-hour road call backlog.
Believe me, I know how to shop for bargain cars, but I’m here to tell you that a 11-year-old beater with unknown true mileage, that will most likely need to be in the shop every other week just to keep running. If I’m to trust something to get me to and from places with no transit, it has to be reliable. I’d rather look at things about 6 years old, with about 70,000 honest miles, verified to be in good condition by the mechanic of my choice. That would run me about $8,000, which is my total transportation expense for 6 years, including transit fares, grocery delivery once a month, and the VERY occasional car rental or cab ride. In addition to the money just for the car, I would be out the cost of insurance, the cost of maintenance and repairs, and the cost of parking, which would mean either renting a parking space at $100 a month, or dealing with ceaseless parking tickets and tow bills- or moving somewhere where parking is ample or I have my own space.
That would almost certainly mean moving to an area badly served by transit, where I would have to drive to do nearly everything, thus spending more on fuel as well, plus additional wear and tear on the vehicle. If you have ever noticed, the easier it is to own a car in a place, the less likely that place is to have such urban amenities as cozy shopping districts right around the corner from your home where you can grab a gallon of milk without trekking to the grocery stores. This means that come a blizzard or some other emergency, I’m stranded in a place where the nearest store is a mile away, an insurmountable obstacle to walking when the temp drops below zero.
I would spend more money to live in the type of environment I absolutely hate, in other words. Right now, I have 4 places to buy milk within 4 blocks of my home, plus a huge array of ethnic restaurants, and the beach and the train less than a mile away by a bus that runs every 10 minutes or so till 1AM. The train runs 24/7 and there is the METRA nearby to go to the north shore burbs if need be. There is another bus line 4 blocks south, another 3 a mile east, another 6 blocks north, and plenty of Walgreen’s, CVS, and Aldi’s outlets easily reached by bus plus two large, mainstream supermarkets, and a Target 4 blocks away.
Car prices in South Africa are through the roof!! We have high interest rates and inflated prices, to get a new car here is tough. But, your article was very informative.
llpoh with words of wisdom. No surprise there. This thread makes me wonder if I should quit driving a 16 year old truck as my daily driver. Of course, the alternative is 40+ years old-I think I should put a few bucks into my “classic”.
Thanks AKA – how you doing?
Been busier than a one-legged man in an ass-kicking contest. So I have been lurking a lot more than posting. But very well, thanks for asking. And you as well, I gather.
Aka – This being on vacation stuff is hard work. But I am always pleased to see you post, as you bring a special Alaskan and life perspective, along with the rest of the old timers.
The hole left by AWD is large, so we all gotta lift our games.
Speaking of Alaska perspective, this November election will be mighty interesting, and I bet Alaska gets some national media attention. There are two races that are going to attract a lot of attention.
The Senator position up is between Democrat Mark Begich, who got elected, by a hair, six years ago when the long time incumbent Ted Stevens was convicted of corruption literally the week before the election. Shortly thereafter, the charges were dropped, his name more or less cleared, but the damage had been done. Ted Stevens, you might recall was THE senior senator in DC, something like 4th in line to the POTUS, and an extremely effective “bring home the bacon” rep for AK. Begich is being challenged by Republican nominee Dan Sullivan, formerly AK Attny General (he brought multiple suits against the Obama administration) and Commissioner of AK Dep’t of Natural Resources. Also a Marine-he had to take a sabbatical to do reserve duty in the sandbox. Now supported by the Koch Bros (allegedly), in an effort for Reps to retake the Senate. Meanwhile, the Dem machine is throwing huge bucks at Begich to keep him in office.
Meanwhile, Sean Parnell is the incumbent Repub Governor. He inherited the position when Sarah Palin pulled the plug, but was re-elected by a strong majority in 2010. He was being challenged by the Democrat Mallot, who has some seriouys name recognition in Southeast AK (think Juneau), but not as much elsewhere, and Independent Walker (formerly a moderate Repub). The AFL-CIO refused to endorse either Mallot or Walker unless they joined forces, as polling indicated Parnell would walk away from a 3 way race (duh!). So at the 11th hour, Walker and Mallot formed the Unity Party, the Lt Gov nominees withdrew, and for the first time ever, the AK Democrat Party will not field a candidate-they are endorsing the Walker/Mallot Gov/Lt Gov (respectively) ticket. This is going to be big, and it may make a real horse race.
Interesting times.