Subprime Auto Nation

1prophet

Diamond Member
Aug 17, 2005
5,313
534
126
According to the following report the surge in new car sales is due to relaxation of lending standards and creative financing, sounds very familiar to the housing bubble.

http://www.financialsense.com/contributors/james-quinn/subprime-auto-nation

excerpt

This is America, land of the delusional and home of the vain. The appearance of success is more important than actual success. The corporate mainstream media dutifully reports the surge in auto sales is surely a sign the economy is recovering and the consumer has finished deleveraging and is ready to spend again.

The government propaganda machine proclaims the surging auto sales are due to their wise and forward thinking policies (like the Chevy Volt). Luckily for them, there are millions of gullible Americans who believe the storyline and are easily convinced that driving a $30,000 new car, financed over seven years, makes them a success.

The decades of Bernaysian marketing propaganda has worked its magic on the government educated, math challenged citizenry. There are only two things that matter to the non-thinking auto buyer (renter) - the monthly payment and what the next door neighbor and his coworkers will think.

Buying a fuel efficient car they can afford, paying it off in three or four years, and driving it for ten years, while saving the monthly car payment, is what a practical, rational thinking person would do.

The fact that only 20% of the 9.7 million vehicles sold this year have been small cars and the average sales price of new cars sold is now $31,000 proves Americans are still living in a delusional fantasyland of cheap gas and monthly payments for eternity.

As gas prices surpass $4 per gallon across the country, somehow 4.7 million of the 9.7 million vehicles sold in 2012 have been pickups, vans, crossovers or SUVs.

Three of the top eight selling vehicles are pickups. Luxury vehicle sales are booming, with Mercedes, BMW, Porsche, Land Rover and Audi showing double digit percentage sales gains over 2011. We've entered a recession, gas prices are approaching all-time highs, job growth is pitiful, and Americans continue to buy luxury gas guzzlers on credit. This will surely end well.

The average payment on a new car in 2012 is $461. For used cars, the average monthly payment is $346. Today, 77% of new car purchases are financed. About half of all used vehicles involve financing. Of those cars financed, 89% are through a loan vs. 11% with a lease.

A critical thinking person might wonder how a country with 4 million less employed people than we had in 2007, median household net worth down 35%, and real wages lower than they were in 2007, could be experiencing an auto boom. The answer is a government/corporate/banker/media effort to funnel taxpayer funds to deadbeats across the land in a fruitless attempt to create a facade of recovery.

Our governing elite are convinced that more debt peddled to the masses is the path to recovery for an economy that imploded due to excessive debt peddled to the masses in the first place.

Essentially, it comes down to who benefits from the peddling of debt. It isn’t the masses, as they become enslaved in the chains of debt and monthly payments in perpetuity. Debt peddling benefits Wall Street bankers, politicians, and mega-corporations selling crap to the masses.
 

drebo

Diamond Member
Feb 24, 2006
7,034
1
81
Well duh. How else do all those welfare queens with 8 person families living in Section 8 2-bedroom appartments afford their Cadilac Escalades?

Seriously, though...that the average new car price is $31k is astounding! Both my wife's and my car together didn't cost $31k! Wow, stupid people are stupid.
 

cuafpr

Member
Nov 5, 2009
179
1
76
as someone that sold cars at dodge dealership while between jobs i can say this is true! Our average payment leaving the lot was 550 a month, and we specialized in low income / bad credit. I signed several people on a new car for around 20k, at 500-700 a month when they only showed around 2,200 a month income b4 taxes/bills. Several had interest rates 18% or higher but hey we got them approved. :/
 
Oct 16, 1999
10,490
4
0
Unless people are buying these cars to resell or banks start selling CDS on them this isn't another housing bubble. Shady business ripping off stupid customers is the US economy's circle of life. So is putting it all on the credit card.
 

Exterous

Super Moderator
Jun 20, 2006
20,562
3,740
126
For used cars, the average monthly payment is $346

Good god - thats about $25,000 for a 5 year or $20,000 for a 4 year loan. Thats ridiculous. But then what do I know - We got a used Civic in 2005 for $14,000 (Financed $10,000) that now has 170,000 miles and we don't expect to replace it for another 2 years...

Again - we can't seem to plan for tomorrow if something new and shiny is available for purchase today. By dropping the purchase price you could easily get the average American to quintuple the size of their retirement savings!
 
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manimal

Lifer
Mar 30, 2007
13,559
8
0
Its really a win win for the lenders on cars. Sure they will lose on some but the crazy high percentages pay off. 18 percent is insane. Yes their repo rates will be high but transponder equipped vehicles are easy to retrieve.


Thread is really about a big portion of the old middle class that walked away from homes and have terrible credit but still have the same needs as before.

New cars are expensive and even a minivan if new is in the mid 30s.
 

IronWing

No Lifer
Jul 20, 2001
72,346
32,896
136
People are stupid. When it comes to car buying people become big time stupid. Blaming the government for people being stupid about car buying is also stupid. Being stupid when it comes to buying cars is a trait as old as the automobile. There was no golden age when the masses wisely saved their pennies and spent frugally on practical cars that met their basic needs. Ooh shiny...
 

Texashiker

Lifer
Dec 18, 2010
18,811
198
106
The fact that only 20% of the 9.7 million vehicles sold this year have been small cars

When more then 50% of the population lives in cities, why are so few people buying small cars?

When people buy SUVs and trucks as status symbols, I think that is a good example of our gluttony and waste.
 

Jhhnn

IN MEMORIAM
Nov 11, 1999
62,365
14,685
136
Unless people are buying these cars to resell or banks start selling CDS on them this isn't another housing bubble. Shady business ripping off stupid customers is the US economy's circle of life. So is putting it all on the credit card.

The individual loans are sliced, diced, & blended in with other loans to create debt instruments like bonds & CDO's, hedged extensively with CDS's, sold to investors of all sorts.

The differences between this and housing are the magnitude of it all and the length of obligation to pay. It's not like your auto loan will recast or reset in a few years, either.

It's just another way for middlemen, aka "lenders" to exploit fundamental conflict of interest, eschew financial responsibility to any party other than themselves.
 

K1052

Elite Member
Aug 21, 2003
51,974
44,863
136
When more then 50% of the population lives in cities, why are so few people buying small cars?

When people buy SUVs and trucks as status symbols, I think that is a good example of our gluttony and waste.

Auto ownership per capita and miles driven have flattened over the last 5-7 years. Fewer people are buying cars and those that do are driving them less, since we are still showing positive population growth.

Transit ridership in has been increasing and many systems are breaking ridership records.
 

Texashiker

Lifer
Dec 18, 2010
18,811
198
106
Auto ownership per capita and miles driven have flattened over the last 5-7 years. Fewer people are buying cars and those that do are driving them less, since we are still showing positive population growth.

Transit ridership in has been increasing and many systems are breaking ridership records.

That does not explain the 20% number.
 

K1052

Elite Member
Aug 21, 2003
51,974
44,863
136
That does not explain the 20% number.

It hit nearly 27% in 2008 IIRC, availability of credit and an improved economy have a lot to do with it. Improved MPG in larger vehicles is also a factor.

Regardless, the bigger picture is that Americans are buying fewer cars and driving them less.
 

BoberFett

Lifer
Oct 9, 1999
37,562
9
81
Unless people are buying these cars to resell or banks start selling CDS on them this isn't another housing bubble. Shady business ripping off stupid customers is the US economy's circle of life. So is putting it all on the credit card.

It's also propping up the auto industry, and if you'll recall we just had to bail out a large portion of that industry recently. If sales tank, what happens to those wonderful proclamations from Obama about how he saved billions of jobs?

And do you really think we won't bail out banks who are sitting on these auto loans should people start defaulting on the payments should things in the economy go sour again? Assuming half of those vehicles are fully financed (which is probably way too low) that's a couple hundred billion dollars a year in auto financing.

Our economy is a sham. Either side saying they can fix it at this point is a flat out lie, they're just putting morphine soaked bandaids on a festering wound. It needs to crash hard before it can be fixed.
 

PingSpike

Lifer
Feb 25, 2004
21,756
600
126
I don't know why people are shocked at the $30K average price. Car prices have shot up a lot, especially in the last 5 years or so. Econoboxes are pushing up against $20K now. The Honda Fit STARTS at over 15K. Aren't minivans like $30K? Throw in the full size trucks that are approaching the size of an 18 wheelers and a healthy dose of audi and BMWs and I'm surprised that number isn't even higher. They're a lot safer, more fuel efficient, have more features and are probably more reliable than the older models but you can't buy the older models new anymore and even if you could they still wouldn't sell for their old prices due to inflation. Moreover, the used car market is a rip off right now so it isn't much of an alternative in many cases. The supply of them is low since few people with serviceable vehicles are discarding them and the government decided to crush a lot of the supply. I've seen 2 year old cars priced within $500 of a new model. To me that sends a clear message to potential used car buyers: Get Lost.

I'm not saying Americans aren't taking out god awful loans and buying ginormous vehicles but the article is acting like this is some sort of new phenomenon and Americans have just up and decided to be stupid. I read an article a few weeks ago about how Americans are keeping their cars longer than ever. And in his zeal to imply Americans are looking for the most gas guzzling vehicle available the author glosses over the fact that new vehicles across all classes get better gas mileage. He also presents very little comparison data from previous years leading me to believe he's cherry picked a few statistics and ignored broader trends. I'd look it up but I'm feeling kinda of lazy honestly, but often what some one doesn't say tells volumes.
 
Oct 16, 1999
10,490
4
0
The individual loans are sliced, diced, & blended in with other loans to create debt instruments like bonds & CDO's, hedged extensively with CDS's, sold to investors of all sorts.

The differences between this and housing are the magnitude of it all and the length of obligation to pay. It's not like your auto loan will recast or reset in a few years, either.

It's just another way for middlemen, aka "lenders" to exploit fundamental conflict of interest, eschew financial responsibility to any party other than themselves.

Well I certainly shouldn't be surprised. Bankers would slice, dice, and blend children if there was a dollar in it for them.
 

WackyDan

Diamond Member
Jan 26, 2004
4,794
68
91
I don't know why people are shocked at the $30K average price. Car prices have shot up a lot, especially in the last 5 years or so. Econoboxes are pushing up against $20K now. The Honda Fit STARTS at over 15K. Aren't minivans like $30K? Throw in the full size trucks that are approaching the size of an 18 wheelers and a healthy dose of audi and BMWs and I'm surprised that number isn't even higher. They're a lot safer, more fuel efficient, have more features and are probably more reliable than the older models but you can't buy the older models new anymore and even if you could they still wouldn't sell for their old prices due to inflation. Moreover, the used car market is a rip off right now so it isn't much of an alternative in many cases. The supply of them is low since few people with serviceable vehicles are discarding them and the government decided to crush a lot of the supply. I've seen 2 year old cars priced within $500 of a new model. To me that sends a clear message to potential used car buyers: Get Lost.

I'm not saying Americans aren't taking out god awful loans and buying ginormous vehicles but the article is acting like this is some sort of new phenomenon and Americans have just up and decided to be stupid. I read an article a few weeks ago about how Americans are keeping their cars longer than ever. And in his zeal to imply Americans are looking for the most gas guzzling vehicle available the author glosses over the fact that new vehicles across all classes get better gas mileage. He also presents very little comparison data from previous years leading me to believe he's cherry picked a few statistics and ignored broader trends. I'd look it up but I'm feeling kinda of lazy honestly, but often what some one doesn't say tells volumes.

This. I bought a brand new truck for $34k because the used at the dealer were going for $30k. Used private sales were cheaper, but the owners didn't have them paid off yet wich made buying one more a pain in the ass...

So for $4k more I got a new more efficient generation of motor, higher towing capacity, and long warranty. SOLD!

Yesterday I towed a 8000 pound trailer 150 miles... Can't do that with a Honda Fit.
 

Thump553

Lifer
Jun 2, 2000
12,837
2,621
136
I'm astonished at those rates of auto loans to sales. I haven't had an auto loan since the federal tax laws were changed to make them nondeductible-a couple of decades ago. Anyone who owns a home with equity (on paper at least) that does a car loan instead of an equity line of credit is either (1) fairly certain they will default and don't want to risk the home or (2) financially stupid.
 

Jeff7

Lifer
Jan 4, 2001
41,596
19
81
People are stupid. When it comes to car buying people become big time stupid. Blaming the government for people being stupid about car buying is also stupid. Being stupid when it comes to buying cars is a trait as old as the automobile. There was no golden age when the masses wisely saved their pennies and spent frugally on practical cars that met their basic needs. Ooh shiny...
The car is frequently tied very tightly to the driver's ego, and just being able to drive is seen as a rite of passage.
A bad car means you're a bad person, or so society says.
 

halik

Lifer
Oct 10, 2000
25,696
1
0
Wow, just about anyone can finance a car at 1.99%/1.49% with penfed right now, and they keep those notes on their balance sheet.
 

Dannar26

Senior member
Mar 13, 2012
754
142
106
I'm astonished at those rates of auto loans to sales. I haven't had an auto loan since the federal tax laws were changed to make them nondeductible-a couple of decades ago. Anyone who owns a home with equity (on paper at least) that does a car loan instead of an equity line of credit is either (1) fairly certain they will default and don't want to risk the home or (2) financially stupid.

Theres quite a bit of number 2 out there.

Yes, I meant it like that.
 

halik

Lifer
Oct 10, 2000
25,696
1
0
I'm astonished at those rates of auto loans to sales. I haven't had an auto loan since the federal tax laws were changed to make them nondeductible-a couple of decades ago. Anyone who owns a home with equity (on paper at least) that does a car loan instead of an equity line of credit is either (1) fairly certain they will default and don't want to risk the home or (2) financially stupid.

I'm pretty sure you will not find a HELOC with rates less than 2%; so putting second lean on your house versus a secured loan against the asset is idiotic.
 

Wreckem

Diamond Member
Sep 23, 2006
9,541
1,106
126
Subprime auto loans for new autos are 17%-30%.

Fortunately, these loans are a small minority of auto financing. Unless you take the tote the note lots and those have always been popular with poor credit/low income people.