Subprime on Wheels, by Eric Peters

Like the housing industry before it, the auto industry has employed dicey credit to juice sales, and there can be no doubt the industry will meet the same fate as the housing industry in 2007-2009. It’s already started. From Eric Peters on a guest post at theburningplatform.com:

It’s a good time to be a repo man. . . again.

Lots of business picking up used cars people’ve stopped making payments on.

According to S&P Global Ratings and an article in Bloomberg News, defaults on these subprime loans are at their highest water mark since the subprime collapse of 2008 and the “recovery rate” – what the lender ends up recouping of the original debt principle – is a mere 34.8 percent.

It’s a lot money flushed.

But how is it that cars – all of them, not just the used ones – bleed value this quickly and this much?

It’s because they’re not really worth that much to begin with.

As distinct from what their price was to begin with.

New car prices are hugely inflated – mostly because of electronic gadgets that dazzle when new and for which people will pay (that is, finance) top dollar . . . but which get old and lose value quickly.

They don’t get old in a calendar year or wear-and-tear sense but in terms of their “latest thing-ness,” which vanishes like a late April snow shower. Think how quickly your smartphone or computer hags out. Now consider the screens and apps and other such they’re installing in cars.

How useful is a five-year-old GPS system with a non-touchscreen and without the latest version of whatever-the-latest-apps are? It probably doesn’t even have the latest app to version up to.

And how much is a five-year-old laptop worth? It cost $1,200 new.

To continue reading: Subprime on Wheels

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