Tag Archives: Auto loans

Subprime Auto Delinquency Rates at Levels Higher than During the Financial Crisis, by Peter Schiff

Posted on May 19, 2018 | 1 comment

Cars have gotten very expensive. Most purchases are financed; the buyer takes out a loan. Loan terms keep stretching out, to make cars more “affordable.” And now delinquencies are rising on subprime auto loans, which is probably a harbinger of troubles for all auto loans and the auto industry in general. From Peter Schiff at schiffgold.com:

Here’s another sign that the air is starting to come out of the subprime automobile bubble.

The default rate on subprime auto loans has reached levels higher than we saw during the financial crisis. As a result, lenders are shutting off the easy money spigot. That’s bad news for the auto industry.

According to the latest data from Fitch and reported by Bloomberg, the delinquency rate for auto loans more than 60 days past due hit 5.8% in March. That’s the highest level since 1996. The default rate during the peak of the financial crisis came in at around 5%.

And this is happening while the economy is supposedly doing great. What will delinquency rates look like when the economy goes bad?

So far, small companies have borne the brunt of rising defaults. According to Bloomberg, “an influx of generally riskier, smaller lenders flooded into it in the post-crisis years, bankrolled by private-equity money, which pursued the riskiest borrowers in order to stay competitive.” Those companies are beginning to go belly-up. But as ZeroHedge noted, “we all know what comes next: the larger companies go bust, inciting real capitulation.”

Meanwhile, the number of auto loans and leases extended to customers with shaky credit has plunged, falling almost 10% from a year earlier in January, according to Equifax. Auto-lease origination to high-risk borrowers decreased by 13.5%.

The auto industry faces a double-whammy. With defaults on the rise and tighter lending standards, its pool of customers is shrinking. Meanwhile, rising interest rates will push the price of vehicles even higher than they already are – and they are high. That means even more consumers squeezed out of the market.

As we reported last month, the price of a new car has risen to the point that the vast majority of Americans simply can’t plunk down some cash and drive off the lot. Even a decent used car is out of reach for most American consumers. The average price for a new vehicle is at a record high $31,099, and the average used car price is also in record territory – $19,589.

To continue reading: Subprime Auto Delinquency Rates at Levels Higher than During the Financial Crisis

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Auto-Loan Subprime Blows Up Lehman-Moment-Like, by Wolf Richter

Posted on November 15, 2017 | Leave a comment

It’s always the trashiest parts of the credit markets that blow up first. From Wolf Richter at wolfstreet.com:

But there is no Financial Crisis. These are the boom times.

Given Americans’ ceaseless urge to borrow and spend, household debt in the third quarter surged by $610 billion, or 5%, from the third quarter last year, to a new record of $13 trillion, according to the New York Fed. If the word “surged” appears a lot, it’s because that’s the kind of debt environment we now have:

  • Mortgage debt surged 4.2% year-over-year, to $9.19 trillion, still shy of the all-time record of $10 trillion in 2008 before it all collapsed.
  • Student loans surged by 6.25% year-over-year to a record of $1.36 trillion.
  • Credit card debt surged 8% to $810 billion.
  • “Other” surged 5.4% to $390 billion.
  • And auto loans surged 6.1% to a record $1.21 trillion.

And given how the US economy depends on consumer borrowing for life support, that’s all good.

However, there are some big ugly flies in that ointment: Delinquencies – not everywhere, but in credit cards, and particularly in subprime auto loans, where serious delinquencies have reached Lehman Moment proportions.

Of the $1.2 trillion in auto loans outstanding, $282 billion (24%) were granted to borrowers with a subprime credit score (below 620).

Of all auto loans outstanding, 2.4% were 90+ days (“seriously”) delinquent, up from 2.3% in the prior quarter. But delinquencies are concentrated in the subprime segment – that $282 billion – and all hell is breaking lose there.

Subprime auto lending has attracted specialty lenders, such as Santander Consumer USA. They feel they can handle the risks, and they off-loaded some of the risks to investors via subprime auto-loan-backed securities. They want to cash in on the fat profits often obtained in subprime lending via extraordinarily high interest rates.

Subprime borrowers are perceived as sitting ducks. They’ve been turned down, and they’re aware of their bad credit, and they often think they have no other options. And so they often end up with ludicrously high interest rates on their loans, which these borrowers, because of the ludicrously high interest rates, have trouble servicing.

To continue reading: Auto-Loan Subprime Blows Up Lehman-Moment-Like

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The Other Shoe Drops: Prime Auto Loan Losses Surge As Recoveries Tumble, by Tyler Durden

Posted on May 14, 2017 | Leave a comment

The air is leaking from the auto and auto-finance bubbles (the two are joined at the hip). From Tyler Durden at zerohedge.com:

When we looked at subprime auto delinquencies most recently, we found some troubling trends: first, in February, we showed that 61+ day delinquencies in General Motors’ subprime securitization book would support a rather bleak thesis for future auto sales, and specifically the demand side of the equation, with January 2017 delinquency rates soaring to the highest levels since late 2009/early 2010. 

Autos

Ironically, this hasn’t stopped lenders from providing financing, and according to Morgan Stanley since 2010, the share of Subprime Auto ABS origination that has come from deep subprime deals has increased from 5.1% to 32.5%, suggesting that yield-starved buyside will put “other people’s money” into anything as long as it provides a slightly higher yield.

Subprime

Meanwhile, the subprime shock has already impacted the broader market, observed with the latest monthly auto sales data which declined four month in a row heading into May. An even bleaker picture of the subprime market emerged a month later when looking at the latest securitization analysis from Morgan Stanley which revealed that 60+ day delinquencies at 266 subprime auto ABS deals were surging – despite low unemployment, high consumer confidence and debt-to-income ratios at 30-year lows – back to ‘great recession’ levels. Meanwhile, loss severities were also shooting higher just as used car prices were sliding. 

Used Car Prices

In part, this tied in with the overnight look at the “flood of off-lease vehicles“, according to which by the end of 2019, an estimated 12 million low-mileage vehicles are coming off leases inked during a 2014-2016 spurt in new auto sales, which is set to put even more pressure on used (and new) car prices for the foreseeable future.

To continue reading: The Other Shoe Drops: Prime Auto Loan Losses Surge As Recoveries Tumble

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Is this the Sound of the Bottom Falling Out of the Auto Industry? by Wolf Richter

Posted on March 22, 2017 | Leave a comment

Used car prices are falling, which for a variety of reasons is not good for the auto industry. From Wolf Richter at wolfstreet.com:

Not quite, not yet, but it’s not good either.

Let’s hope that the problems piling up in the used vehicle market — and their impact on new vehicle sales, automakers, $1.1 trillion in auto loans, and auto lenders — is just a blip, something caused by what has been getting blamed by just about everyone now: the delayed tax refunds.

In its March report, the National Association of Auto Dealers (NADA) reported an anomaly: dropping used vehicle prices in February, which occurred only for the second time in the past 20 years. It was a big one: Its Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from January, “by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble.”

The index has now dropped eight months in a row and hit the lowest level since September 2010. The index is down 8% year over year, and down 13% from its peak in 2014.

The price decline spanned all segments, but it hit the two ends of the spectrum — subcompact cars and the luxury end — particularly hard. The list shows the change in wholesale prices from January to February in vehicles up to eight years old:

NADA blamed three factors:

The surge in new vehicle incentive spending. Automakers, drowning in unsold inventories on dealer lots and desperate to move the iron and keep their plants running, increased incentive spending by 18% to the highest level in over a decade. This made new vehicle more competitive with late-model used vehicles. So this would be on the demand side.

The growing flood of used vehicles going through auction. Over the first two months this year, volume of vehicles up to eight years old rose by about 5% year-over-year. Volume of late-model vehicles – the supply from rental car companies and lease turn-ins – jumped 10%. So that’s on the supply side.

To continue reading: Is this the Sound of the Bottom Falling Out of the Auto Industry?

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Retailing Is Bad And About To Get Worse, by Dave Kranzler

Posted on February 28, 2017 | Leave a comment

Mounting bankruptcies indicate financial stress is increasing, which means that retailers are suffering. From David Kranzler on a guest post at theburningplatform.com:

Americans are filing for bankruptcy at the fastest rate in several years. In January 2017, 55,421 individuals filed bankruptcy. That’s a 5.4% increase over January 2016. In December 2016, 4.5% more individual bankruptcies were filed than in December 2015. It’s the first time in 7 years that personal bankruptcies have risen in successive months on a year over year basis.

Also notable, in 2016 the number of U.S. Corporate bankruptcies jumped by 26% over 2015. U.S. Corporations have issued $9.5 trillion in bonds. That’s 61% more than they borrowed in the eight years leading up to the 2008 de facto financial system collapse (aka “the great financial crisis”).

The Financial Times reported that over 1 million U.S. consumers – prime and subprime – were behind on their car loans and that the overall delinquency rate had reached its highest level since 2009. The FT also stated that “lending to consumers with weak credit scores has been one of the fastest growing parts of the [banking] industry.” It’s starting to smell like early 2008 out there.

This is information and data that you will not hear on any of the “Bubblevision” financial “news” programs or read in the mainstream financial media. It’s also information that is not being factored at all by stock prices.

Americans are bulging from the eyeballs with mortgage, auto, credit card and student loan debt. The amount of outstanding auto debt hits a new record every month. Of the $1.2 trillion in auto loans outstanding, over 30% is considered subprime. In fact, I would bet good money that the number is closer to 40%, as the same type of non-documentation loans that infected the mortgage market in mid-2000’s has invaded the auto loan market. It was recently disclosed that the 61+ day delinquency rate on General Motors’ securitized subprime loans has soared to levels not seen since 2009.

To continue reading; Retailing Is Bad And About To Get Worse, by Dave Kranzler

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“Seriously Delinquent” Auto Loans Surge, by Wolf Richter

Posted on February 17, 2017 | 1 comment

The latest canary in the coal mine is surging auto loan delinquencies. The upturn in the auto industry cannot withstand a credit retrenchment. From Wolf Richter at wolfstreet.com:

The New York Fed, in its Household Debt and Credit Report for the fourth quarter 2016, put it this way today: “Household debt increases substantially, approaching previous peak.” It jumped by $226 billion in the quarter, or 1.8%, to the glorious level of $12.58 trillion, “only $99 billion shy of its 2008 third quarter peak.”

Yes! Almost there! Keep at it! There’s nothing like loading up consumers with debt to make central bankers outright giddy.

Auto loan balances in 2016 surged at the fastest pace in the 18-year history of the data series, the report said, driven by the highest originations of loans ever. Alas, what the auto industry has been dreading is now happening: Delinquencies have begun to surge.

This chart – based on data from the Federal Reserve Board of Governors, which varies slightly from the New York Fed’s data – shows how rapidly auto loan balances have ballooned since the Great Recession. At $1.112 trillion (or $1.16 trillion according to the New York Fed), they’re now 35% higher than they’d been during the crazy peak of the prior bubble. Note that during the $93 billion increase in auto loan balances in 2016, new vehicle sales were essentially flat:

No way that this is an auto loan bubble. Not this time. It’s sustainable. Or at least containable when it’s not sustainable, or whatever. These ballooning loans have made the auto sales boom possible.

To continue reading: “Seriously Delinquent” Auto Loans Surge

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“Well, That’s Never Happened Before”, by Tyler Durden

Posted on September 18, 2016 | 1 comment

The automobile industry may be in descent mode, at least according to the auto loan statistics. From Tyler Durden at zerohedge.com:

In the history of data from The Fed, this has never happened before…

Aggregate Auto Loan volume actually fell last week… And less loans means one simple thing… less sales (because prices have never been higher and no one is paying cash)…

Which is a major problem since motor vehicle production continues to rise as management is blindly belieiving the Hillbama narrative that everything is (and will be) awesome.

The problem is… inventories are already at near record highs relative to sales (which are anything but plateauing)…

In fact, the last time inventories were this high relative to sales, GM went bankrupt and was bailed out by Obama.

The big picture here is simple… US Automakers face a plunge in auto loans for the first time in this ‘recovery’, and with sales plunging and inventories near record highs, production (i.e. labor) will have to take a hit… and that plays right into Trump’s wheelhouse and crushes Hillbama’s narrative just weeks before the election.

http://www.zerohedge.com/news/2016-09-17/well-thats-never-happened

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We just got some data on auto lending, and it’s setting off alarm bells, by Matt Turner

Posted on September 14, 2016 | 2 comments

If you’re looking for the next lending disaster, subprime automobile loans certainly have that potential. From Matt Turner at businessinsider.com:

There is a lot of talk out there about the auto-loan market right now.

The default rates for auto loans in oil-producing regions in the US have been jumping, while hedge fund honcho Jim Chanos has said the auto-lending market should “scare the heck out of everybody.”

John Oliver has used time on his show, “Last Week Tonight,” to highlight the ways some used-car dealerships take advantage of people.

Now, in a presentation Monday at the Barclays Financial Services Conference, Gordon Smith, the chief executive for consumer and community banking at JPMorgan, has set out some eye-opening statistics on the market.

To be clear, JPMorgan decided back in 2013 to pretty much pull out of auto lending to subprime borrowers — that is car buyers with the worst credit profiles — and the presentation slides are at least in part designed to reassure investors that JPMorgan isn’t participating in the loose lending that its competitors might be.

With that said, let’s dive in:

Close to half of all auto loans are to borrowers with a sub-680 FICO score.

For example, 47% of all auto loans in the first half went to borrowers with a FICO score of less than 680, and 21% of all loans had a loan-to-value (LTV) ratio of more than 120%.

To put this in plain English: Half the loans are going to risky borrowers, and the banks are giving many of them them more money than the car itself is worth.

One in eight loans is to borrowers with a sub-620 FICO score and has a loan-to-value ratio of more than 100%.

The riskiest combination, that is borrowers with weak credit who are also taking on more debt than the value of the car, still isn’t the bulk of auto lending.

About 5% of industry auto loans are to people with a FICO score of less than 620 and have an LTV ratio of more than 120%.

A further 8% of loans are going to those with FICO scores of less than 620 and have an LTV of 101% to 120%.

That adds up to 13% of total loans, or about one in eight.

To continue reading: We just got some data on auto lending, and it’s setting off alarm bells

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It Starts: Subprime Auto Loans Implode (in Your Bond Fund), by Wolf Richter

Posted on February 24, 2016 | Leave a comment

From Wolf Richter at wolfstreet.com:

“Fears of an impending liquidity crunch in that asset class.”

“What is happening in this space today reminds me of what happened in mortgage-backed securities in the run-up to the crisis,” U.S. Comptroller of the Currency Thomas Curry warned in October about the auto loan bubble.

And his warning is now becoming reality.

Subprime auto loans aren’t big enough to take down our megabanks, the way subprime mortgages had done. But they’re big enough to take down specialized auto lenders and cause a lot of tears among investors that bought the highly rated structured securities backed by subprime and deep-subprime auto loans that are now defaulting at a rate last seen during the days of the Financial Crisis.

And they’re big enough to knock the auto industry, one of the few booming sectors in the otherwise lackadaisical economy, off its record perch. An auto-loan implosion would start at subprime and work its way up, just like mortgages had done.

The business of “repackaging” these loans, including subprime and deep-subprime loans, into asset backed securities has also been booming. These ABS are structured with different tranches, so that the highest tranches – the last ones to absorb any losses – can be stamped with high credit ratings and offloaded to bond mutual funds designed for retail investors.

Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.

Auto loans in general have been in a huge boom that reached $1.04 trillion in the fourth quarter 2015:

Equifax reported last year that 23.5% of all new auto loans where to subprime borrowers. So unlike the mortgage crisis, subprime auto loans aren’t in the trillions, but in the neighborhood of $200 billion. Many of them have been repackaged into asset backed securities. And these securities are starting to implode.

Auto loan ABS delinquencies reached 4.7% in January, the highest since February 2010, according to data from Wells Fargo, cited by Bloomberg. During the Financial Crisis, delinquencies topped out at 5.4%. During normal times, they range from 2% to 3%.

John McElravey, head of Consumer ABS Research at Wells Fargo Securities, warned that these delinquencies would entail a wave of defaults. The default rate is already skyrocketing. It hit 12.3% in January, up from 11.3% in December, the highest since 2010.

To continue reading: It Starts: Subprime Auto Loans Implode (in Your Bond Fund)

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