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?

Via USA Today

New-car sales are running at near-peak levels, partly because many consumers are financing their purchases for longer terms.

The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.

Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.

“While longer-term loans are growing, they do not necessarily represent an ominous sign for the market,” said Melinda Zabritski, Experian’s senior director of automotive finance. “Most longer-term loans help consumers keep monthly payments manageable while allowing them to purchase the vehicles they need without having to break the bank.

“However, it is critical for consumers to understand that if they take a long-term loan, they need to keep the car longer or could face negative equity should they choose to trade it in after only a few years.”

The average amount financed for a new vehicle also hit a record high of $28,711 in the first three months of the year, up from $27,612 a year earlier. The average monthly payment for new vehicles also rose to $485 in the quarter ended March 31 from $474 a year earlier.

But as long as the credit is flowing freely at low interest rates, consumers, lenders and automakers are happy.

The industry reports May U.S. car and truck sales Tuesday, and some forecasters expect the annual rate to exceed 17 million units, a level not seen since the height of the housing bubble a decade ago.

Experian also reported that leasing continues to rise, hitting a record of 31.5% of all new-vehicle transactions in the first quarter of this year, up from 30.2% a year earlier. Leasing enables many consumers to drive away with a more expensive vehicle while keeping their monthly payment within their budgets.

However, the resurgence of leasing will have an effect in the next few years because an increasing number of vehicles coming to auction at the end of leases will drive down used-vehicle prices. That means that the value that people who own vehicles get upon trade-in will drop, requiring them to borrow more, possibly at higher interest rates, or settle for a less expensive car.