By on July 25, 2014

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Buried in a feel good story about auto loans comes the news that subprime auto loans are at levels that we haven’t seen in nearly a decade.

Citing data from Equifax, Automotive News reports

The credit bureau also noted originations and total outstanding balances for subprime auto loans — defined as loans to customers with credit scores of 640 or below — also hit recent highs.

Equifax said subprime originations were 2.6 million units year to date through April, representing 32 percent of all auto loan originations. The total outstanding balance of subprime auto loans was $46.2 billion — the highest in eight years, the credit bureau said.

Don’t expect that 32 percent figure to let up any time soon. The glut of credit available for auto financing - driven by securitized auto loans sold as investment grade instruments – is going to keep the auto financing business alive and kicking for the foreseeable future.

But don’t worry, guys. This time, it’s different.

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103 Comments on “Outstanding Subprime Loan Balances Hit 8-Year Highs...”


  • avatar
    jmo

    “Buried in a feel good story about auto loans comes the news that subprime auto loans are at levels that we haven’t seen in nearly a decade.”

    Isn’t that what you’d expect during an economic recovery? I’m not really sure what your point is.

    • 0 avatar

      @ JMO – Yes, I certainly agree. Context is needed to properly analyze the data. If Equifax is defining sub prime as 640 and belew Beacon/FICO, that also includes Buy Here Pay Here. There is no commonly accepted definition of Sub Prime, but Equifax’s is as good as any. The Great Recession maimed Millions of credit scores. I’d like to see a study by Equifax on the average credit score of consumers from 2007 to present. I’ll see if I can find that data. But the auto industry figured out quickly that if they were going to sell vehicles, they had to figure out how to do it with consumers that weren’t easily financed through more conventional means. Many dealers went into the BHPH business. Lenders started up Sub Prime divisions. The upshot is that MANY consumers are rebuilding their credit scores with the help of these dealers and lenders. Yes, there is some abuse!!! No doubt. Consumers pay a higher interest rate and may have to drive around with a GPS locator on their vehicle.

      It helps to have a vehicle to get to work. I have seen many articles trumpeting the danger of the expansion of Sub Prime without proper context. Its one thing to have data, but quite another to interpret it properly.

      My good friend Jim Henry wrote this piece for AN. He’s about to be grilled.

      • 0 avatar
        dude500

        fyi the average credit data is available in the FRBNY household credit file:

        http://www.newyorkfed.org/householdcredit/2014-q1/data/xls/HHD_C_Report_2014Q1.xlsx

        The average credit score has actually been increasing for average, 1st, 2nd and 3rd quartile.

        Which also perhaps goes to show that credit is actually improving.

        If you believe the trend that credit scores are improving, then investing in subprime ABS is like buying a B- rated bond with the belief that it will rerate to investment grade (with the accompanying increase in the bond price).

    • 0 avatar
      DeadWeight

      Mac: “The first step to becoming an American… get a credit card.”

      Dennis: “Oh yeah, man. We need this guy to build up copious amounts of debt – that is the best way for him to build up his credit. We’re doing him a favor…”

      Charlie: “We’re doing him a HUGE favor! And do you realize how extreme this is? To go from no debt to good old-fashioned American debt? That’s the way to do it.”


       
      It’s Always Sunny in Philadelphia & Paul Krugman’s ‘Murika.

      http://itsalwayssunny.wikia.com/wiki/The_Gang_Gets_Extreme:_Home_Makeover_Edition

  • avatar
    sunridge place

    Derek–you’re really stretching buddy.

    Also ‘buried’ in this ‘feel good’ article is the quote:

    Carlson said the increase in subprime lending was good for the economy. He said, “This is good news as a fully functioning second-chance market is essential for a healthy economy.”

    And, please quit acting like subprime auto financing had a damn thing to do with 2008/2009. It didn’t. And, quit acting like subprime auto financing is anything like the subprime home lending issues of last decade. It isn’t.

    The TOTAL outstanding balances on all subprime loans is $46 billion? Do you realize what a tiny drop in the bucket that is to the overall economy?

    Yes, the 32% of originations isn’t going to go away…because MORE than 32% of the population sits under the 640. Kind of makes sense right? People need cars and those originations include new AND used loans.

    Jeez, I know you’re trying to be Mr #1 Subprime Auto Guy, but you really are stretching and not reporting the bigger picture or providing any real analysis here at all.

    • 0 avatar

      “And, please quit acting like subprime auto financing had a damn thing to do with 2008/2009. It didn’t. And, quit acting like subprime auto financing is anything like the subprime home lending issues of last decade. It isn’t.”

      Nice straw man.

      Check your inbox.

    • 0 avatar
      sunridge place

      Why the ‘this time its different’ line at the end then?

    • 0 avatar
      Pch101

      The term “subprime” has become clickbait for those who don’t understand what “subprime” lending is (which is to say, most people.)

      Just as auto insurance companies sell policies to those who have less-than-perfect driving records, lenders do the same with those than less-than-perfect credit, and they can do so profitability. But subprime has become politicized, a code word for minorities = bad guys.

      On the other hand, loose credit markets (subprime or otherwise) contribute to volatility, which leads to higher highs and lower lows. The securities investors create the bubble as they flood the market with money, then deflate it when they start retreating at the top of the cycle.

      • 0 avatar

        “On the other hand, loose credit markets (subprime or otherwise) contribute to volatility, which leads to higher highs and lower lows. The securities investors create the bubble as they flood the market with money, then deflate it when they start retreating at the top of the cycle.”

        And that’s the most interesting part of the story.

        • 0 avatar
          Pch101

          The issue isn’t with one class of lending (subprime) but with the creativity of financing that pushes volume to its limits.

          The only reason that the average grunt has heard of subprime lending is that it was being used to rationalize in 2007 why there wasn’t going to be a crash. The argument was that the froth was confined to a small segment of the market (read: people who weren’t white), and that the rest of Good America would be just fine.

          Of course, that proved to be totally bogus. The entire market was frothy, and subprime was just the first to go. It was akin to blaming old people for a plague because they’re the ones who get sick and die first, when they’re merely the proverbial canary in the coal mine.

          Real estate got frothy when they started making negative amortization, interest-only, and Option ARM loans as a matter of course, coupled with the ability to cash out on unrealized gains (HELOCs). Consumers should not be provided access with that sort of financing.

        • 0 avatar
          dartman

          I thought the most interesting part of the of the article (which you left out) was the comment from Equifax:

          “Despite the increase in volume, the credit bureau said “serious” delinquencies of 60-plus days remained near all-time lows, and represented less than 1 percent of total outstanding balances.”

          The rich get richer. A real journalist would attempt to square how if these loans were truly sub-prime, then why is the delinquency rate so low?

          In a time where you cant get more than 1/2 percent for a $100,000 cd from a bank, is there any wonder why investors are snapping up securitized loans carrying interest rates of 20% with a delinquency rate of less than 1%?….Duhhh….

          • 0 avatar
            Pch101

            “if these loans were truly sub-prime, then why is the delinquency rate so low?”

            Default rates are cyclical. The subprimes are the first to falter in an economic downturn.

        • 0 avatar

          There is much “alarmism” associated with Sub Prime auto loans these days, largely because the Mortgage Crisis somehow became intertwined with the term “Sub Prime.” The term is highly misleading. Its one thing to loan someone money at a high interest rate to price for the increased risk on a piece of collateral that fits the loan. It is something different to do a reverse amo, interest only, NINJA, or ARM mortgage because credit default swaps allow securitizers to label crap as gold. In the latter case it was thought that housing prices would continue to increase. No one is working under that assumption with auto loans.

          One could well make the case that “securitization” is the root of any Sub Prime issues. After all, when the originator is not the one holding the paper, it is logical to think they might loan money to people differently than if they were. But securitization has funded mortgages, auto loans, credit cards, and all sorts of other credit vehicles to help fuel the economy and create jobs. When properly regulated, “securitization” is a win/win.

          My point is that comparing what is taking place with auto loans with the mortgage crisis is an invalid comparison.

      • 0 avatar
        tuffjuff

        Considering that over half of the United States is considered “subprime” I guess this doesn’t surprise or offend me.

        As somebody who made some terrible decisions nearly a decade ago, I’m a “subprime” borrower. My credit score is in the 600-650 range, and steadily climbing. I pay my bills on time and have nothing nasty out there. I don’t know how high I will be able to go, but if I can maintain basic essentials while having a reliable vehicle and eventually a house, I’m happy.

        • 0 avatar
          28-Cars-Later

          Where did you get a 50%+ figure? The article cites a 32% subprime loan origination figure.

          • 0 avatar

            The so called Sub Prime segment has hovered around 30% for YEARS. Whether it happens to be actual Sub Prime financing through a lender or Buy Here/Pay Here, or Lease Here/Pay Here, it all falls under the heading “Sub Prime. HOWEVER, there is NO UNIVERSAL definition. To some, Sub Prime begins at 640 FICO. To others, it begins at 620 or even 580. Some consumers move back and forth from Sub Prime lenders to dealer provided BHPH.

            Let’s not get carried away over definitions. The historical level has been more static than volatile, with a rise when consumers get their credit scores maimed during recessions.

            When I started in auto retail, terms had just moved from 24 months to 36 months, and people claimed the sky was falling. It is TRUE that most auto loans are “under water.” YES, this means that rebates, a primary strategy of domestics to compete with the imports, most of whom never offer rebates to buyers,are here to stay. The imports protect their resale value by not offering rebates. The domestics try to make that up by offering rebates to buyers.

            Both imports and domestics offer “trunk money” to dealers to use as they see fit. This began in earnest a couple of decades ago when it became clear that consumers had gained an advantage after OEMs had dramatically reduced their dealer markup. Instead of telling consumers, “Our net cost is none of your business,” the industry made cost so hard to calculated most dealership employees can’t do it.

            When I started in auto retail, invoice meant something. These days it IS the amount the dealer pays off at his floor plan lender when the vehicle is delivered. But it has a LOT less to do with dealer cost than the old days.

            What is amusing to me is that consumers think dealers make a lot more on a new vehicle transaction than they do. If a consumer is asked, “DO you think a 10% return for an auto dealer is fair?” the answer is usually, “Certainly, they should probably make a little more.” If you ask if it is fair for an auto dealer to make a $3k profit, the answer is usually, “Lying, thieving, robbing MoFos.” Go figure.

          • 0 avatar
            tuffjuff

            @28

            I’m not saying 50% of LOANS are subprime. I’m saying that according to all kinds of news articles that are easily found online, over half of the American population can be classified as subprime as a whole.

        • 0 avatar
          darkwing

          So, according to Pch’s “subprime = minority” dog whistle, that means 50%+ of the country is minority, too.

          Hmm.

          • 0 avatar
            Pch101

            You need to work on your math.

            While you’re at it, try working on your consistency, too. When you folks blame the financial crisis on the CRA, let’s try to remember what that actually means.

          • 0 avatar
            darkwing

            Oh, goody, this is one of my favorite games — MSNBC meets My Big Fat Greek Wedding. Give him a word, and he’ll tell you what horrible thing it says about you, and how it’s racist.

            “Kimono”. Go.

        • 0 avatar
          petezeiss

          @tuffjuff
          Sh1t happens when you’re young and don’t have daddy’s parachute. Your honesty and perseverance will pull you through.

          I went through a Ch. 13 in the eighties from a reverse spouse-dump when my ex got her Ph.D and then booked. But I’ve been 850+ for 10 years now.

      • 0 avatar
        Toad

        “But subprime has become politicized, a code word for minorities = bad guys.”

        That is insulting and ridiculous. I get concerned about subprime lending because it has the potential to backfire on both the borrower and the lender when undertaken with bad intentions by either party. It is also an interesting subject for a variety of economic and sociological reasons, none of which have anything to do with anybody’s minority status.

        Subprime loans can be a class indicator as far a borrowers go (and that is not universal; some middle and upper class people have surprisingly bad credit). But to imply that those of us that have concerns about subprime borrowers and lending are racists makes no sense.

        Is there a Godwins law for calling people who disagree with you racist?

        • 0 avatar
          petezeiss

          This.
          I *never* think minority when the word subprime is used. I think of the tatted-up, 300+lb, tank-top torturing white guys that seem to always sit next to me on the RJ legs of my flights.

        • 0 avatar

          There is most certainly a group in this country to whom the term “sub prime” conjures up images of people of color. Yes, it is code to some.

          • 0 avatar
            darkwing

            It’s a big country. You can find a group of people here who believe in pretty much anything. That doesn’t make it a pattern, and it doesn’t make Pch’s assertion any less lazy and offensive.

            The real question, then, is why Pch is just so darn good at rooting out these supposed dog whistles…

          • 0 avatar
            Pch101

            Someone is confusing hearing the whistle (which is hard to miss, given how loud and incessant that it is) with composing the tune.

            If you don’t want to be called out for all of the obvious veiled references to race, then I would suggest that you avoid making them in the first place.

            Don’t be surprised when your opposition understands what you’re saying. It’s not as if you guys are known for your subtlety.

          • 0 avatar
            28-Cars-Later

            Deadbeats come in all flavors, wasn’t that the point of things like FICO in the first place a better metric for identifying higher credits risks?

          • 0 avatar
            VoGo

            28-cars,
            Your FICO score is a measure of how much money banks expect to profit from lending you money, not your creditworthiness.

            People who are the most creditworthy do not have the highest FICO scores, because we don’t need to borrow money often.

          • 0 avatar
            Pch101

            A credit score presumes that (a) your history of repayment and (b) the amount of credit that you already have are both relevant to underwriting new debt.

            The idea has some merit. What doesn’t have merit is the belief that money can’t be made from people who have imperfect credit histories. While there are some people who certainly can’t be trusted with any credit at all, most people have some ability to handle credit if the price and terms are right, and that includes subprime borrowers.

    • 0 avatar

      When Derek says “check your inbox”

      You’ve gone one step too far…

      • 0 avatar
        dartman

        Really? Derek’s article about an article written about a press release is silly. People should just read the damn Equifax press release:

        http://investor.equifax.com/releasedetail.cfm?ReleaseID=861885

        From what I see “sub-prime” auto loan delinquencies are less than bank issued credit cards and first mortgages. What is the story? Deadbeat Zombies driving cars they dont make payments on are going to crash the economy because ignorant investors are being sold a bill of goods by the Obama/International Banking cartel?

        Now, get off my lawn!

      • 0 avatar

        Not at all. Sunridge and I know each other offline and correspond.

  • avatar

    Another crash is coming.
    I’m seeing “for sale” signs everywhere.
    More boots on cars in the last 5-months than in my entire life.

    -student loan crisis
    -subprime car loan crisis
    - Dodd Frank slowing down new-home purchases…

    It’s comin’ I tell ya…

    • 0 avatar
      VoGo

      Not many people realize that in addition to his commentary here, BTSR finds time to dominate youtube more than Weird Al and on weekends does palm readings on the side.

    • 0 avatar
      Fred

      The economy seems to run on a boom-bust cycle that few recognize or can deal with. I don’t think it’s as bad nor as good as some say, but then maybe that’s due to my personal situation.

    • 0 avatar
      nrd515

      I haven’t seen a boot in a long long time, and most of the vehicles I see for sale are older, way past their best days cars and trucks/SUVs that aren’t the kind of things loans are taken out for. I pass by a bank repo yard fairly often, and there were a LOT more cars in there back in 2009 or so than now. I maybe see 3 or 4 in there, on average. A friend of mine’s wife works for that bank, and she says the repo rate isn’t too bad at all.

      There are three old GM F-Bodies for sale within a couple of miles of here, and I doubt any of the will go for much over $1500. One thing I do see is an amazing number of new full size pickups. Mostly Ford and Rams, but a fair number of GM trucks too. A few days ago, almost every Ram in front of me at stoplights had 30 day temp tags, with a date on them from within the last week or so. An awful lot of silver trucks are being bought. Blah, but a decent number of decent colors too.

  • avatar
    seth1065

    I agree you need a car to get around, but with used cars the best they have ever been I would think you were buy a older model at a used lot and have a small loan than but a new or two year old car and a big note.

  • avatar
    thegamper

    Subprime auto lending is inevitable. Used car dealerships thrive on it, banks can make money off of it, I dont automatically see it as a negative. The negative would be if too much of new car financing becomes subprime and the bubble pops leading to a large contraction of new car sales. Private lenders are taking most of the risk, the risk to automakers comes mostly from expanding capicity that may have to be withdrawn in the case of a bubble. I think it probably makes good business sense not to leave subprime money on the table if you are an automaker. Someone else will pick up the sales if you dont.

    I would be interested to see what percentage of subprime auto is new vehicle loans made by captive lenders. That might give a better picture of the risk exposure.

    I also think a more disturbing trend is the pie-in-the-sky residual values some automakers are using to lease vehicles. In my experience a lot of the automakers seem to be overvaluing residuals by close to 10%, this could be a pretty big bubble that hits the automakers directly.

    • 0 avatar

      Yes, there are some spots where one can be skeptical about overambitious residual values, but ALG’s numbers are conservative compared to pre-2008. A fuel price spike will temporarily render any residual value projections wrong before equilibrium is reached as fuel price spikes subside and/or consumers become accustomed to the higher prices.

      What hasn’t been publicized is the fact that lessors have been banking MILLIONS because vehicles coming back off lease are making serious money for them. We certainly hear about huge residual losses when they occur, usually because lease lenders continue to liquidate off lease inventory into a down market instead of showing some patience.

      What also isn’t publicized is the fact that many of the residual values provided by OEM captives are at least partially insured. Any huge “hit” will only partially impact the OEM with the insurance company taking the bulk of the risk.

  • avatar
    Hillman

    This story needs more context. Are the number of loans underwater increasing or is it just am increase in loans to those with poor credit scores. Serious question, who would you rather make the loan to. Person a has a pervious bankruptcy and poor credit but has 20% down payment and the loan is only 10% of his take home pay. Person b has perfect credit but is borrowing 100% and is taking on a note that is 30% of his pay. My choice would be obvious.

    • 0 avatar
      Pch101

      Subprime doesn’t mean that the borrower is in default on the current debt. Subprime borrowers have low credit scores based upon their history.

      “Person a has a pervious bankruptcy and poor credit but has 20% down payment and the loan is only 10% of his take home pay. Person b has perfect credit but is borrowing 100% and is taking on a note that is 30% of his pay. My choice would be obvious.”

      Borrower A may make less of an effort to make those payments when they hit the next bump in the road. That’s where the character aspect of the credit score comes into play.

      • 0 avatar
        jmo

        I understand that FICO has value as a predictive tool. But, I’d be curious to know well it has worked historically (especially over the period 2004 to 2014) as a predictive tool.

        • 0 avatar
          Hillman

          I would bet that the bigger factors of repayment are loan to value and the debt ratio of the borrower. I can’t imagine the credit score would trump those two numbers.

          • 0 avatar

            Debt to Income is a component of one’s credit score. Loan to value isn’t, but is part of the criteria considered by a lender.

            Payment history is HUGE. And that’s the largest part of a credit score. Some lenders look at previous car credit. If a person pays their car loans on time, they might get another car loan even if they are slow on everything else.

          • 0 avatar
            jmo

            “Debt to Income is a component of one’s credit score.”

            Is that true? It’s part of the decision about whether to extend credit, but I didn’t know if it was part of your FICO.

  • avatar

    Man was I WRONG!!! Jim Henry’s In Automotive News article was balanced and accurate.

    http://www.autonews.com/article/20140723/BLOG13/307239995/n-y-times-story-on-subprime-offers-feds-ammunition?cciid=email-autonews-fandi&r=encrypted_customer_id

  • avatar
    319583076

    Broadly speaking, the average American spends as much time working to offset owning and operating a car as he/she does operating the car.

    In other words, the average American spends one hour working to pay for one hour of driving his/her car at an average speed. It’s ironic that the symoblism of the American automobile is mobility and freedom. For most people, the reality is that automobile ownership compromises your freedom. Think about it.

    Details of this calculation and other eye-opening computations are in a pretty incredible book called, “Guesstimation” which is widely available.

    • 0 avatar
      Toad

      “Broadly speaking, the average American spends as much time working to offset owning and operating a car as he/she does operating the car.”

      Broadly speaking, many people spend more time working for food than they do eating it, spend more time working for shelter than they spend awake in it, or spend more time working towards sex than they do having it. Just add a car to that list.

      So? Which of the above do you want to give up in the name of “freedom?”

    • 0 avatar
      TMA1

      Still better than a 2-hour roundtrip bus ride when you’ve got to get something done.

      • 0 avatar
        nrd515

        I had a friend who went through a horrible divorce where he lost everything. He got so broke with child support and lawyer payments that he had to give up the lease on the penalty box car he drove and started riding the bus. It took him about 18 months to get another car, and he said that the 18 months he rode the bus to work and back was worse than the divorce itself, which was one of the worst ones I’ve ever heard of. The car he ended up with was a POS, but it got him off the bus, and on his way to rebuilding his life. That was almost 20 years ago, and his ex wife, who was living the good life right after the divorce, is now basically broke, due to her amazingly bad choice of guys to date and live with. The best one was the drug dealer, she ignored/excused all his “issues” until the cops broke the door down one morning, and her kids woke up to find guns pointed at them. Even after that, she gave him a lot of money for a lawyer, and that was the beginning of her money problems.

  • avatar
    johnhowington

    TTAC, always biting the hand that feeds!

  • avatar
    dude500

    It’s important to remember that Prime borrowers default too…

    • 0 avatar
      highdesertcat

      Yes, true. But this is still a great time to buy that new car. Interest rates are low and repayment periods are long. What’s not to like? And buying that new car will help boost the economy.

      Besides, if it doesn’t work out, there’s always money for nuttin’ and foodstamps for free.

      And it will take them a while to repo that new car, so enjoy!

      • 0 avatar
        28-Cars-Later

        “Yes, true. But this is still a great time to buy that new car. Interest rates are low and repayment periods are long. What’s not to like? And buying that new car will help boost the economy.”

        …and they are by-and-large very overpriced and I would personally struggle to find a realistic model worth buying.

        • 0 avatar
          bball40dtw

          Isn’t the answer V6 Mustang based on your recent research? Around 20K for a coupe and around 27K for a convertible. Keeps the options light. The Base V6 with the V6 performance package is my ideal cheap Mustang. It should be closer to 20 than 25 after rebates and discounts.

          • 0 avatar
            28-Cars-Later

            Oh I like ‘em but realistically I’m not set up for a fair weather pony car. I like the Yukon too but realistically its out of my price range, even used they are quite pricy. Essentially in about seven calendar years everything has gone up around $10,000 or more from the 2007/8 price point, features have mostly remained either stagnant or gotten worse, and engine/transmission/overall drivetrain options have mostly gone down. Stagflation has struck the car market. The only uptick really has been the EVs but they have their limitations and the overall idea is really 19th century reincarnation as opposed to something brand new.

          • 0 avatar
            bball40dtw

            The 2015 BoF SUVs from both GM and Ford are excellent. I was initially suspect of the Expedition/Navi being any better than before, but they are very good. All of them are expensive though. The cheapest used 4×4 Tahoes and Expeditions I can find with under 50K miles are going for well over $30K.

            Personally, I won’t buy another car unless I get tired of my C-Max. It could happen because I have automotive ADD. My wife loves her MKT more than all the other vehicles shes owned combined. She’ll be driving that D-platform beast for a long time.

          • 0 avatar
            28-Cars-Later

            For S&G this illustrates my point. There is no direct comparison between the Pontiac Grand Prix and what Buick is currently selling so I compared Lacrosse and Regal to my Pontiac. In order to get a V6, I must choose Lacrosse which with the GT package options I have on my Pontiac comes to $35,610 msrp. Regal gives me those options minus a V6 for $30,615 (I believe the GP is closer to Lacrosse in size but spiritually close to Regal). Dealers may have additional incentives. The Grand Prix GT msrp’d for $24,735, and although we cannot fully know what incentives were then, you can be sure nobody paid nearly $25K for one. So in this case, there is an nearly a 6-10K difference in price for what I am driving now in seven years. This represents a little over 6% increase per year for the Lacrosse, and just under 4% increase per year for Regal, both figures of which are based on a relatively unrealistic phony Pontiac msrp in the first place.

            MY14 Lacrosse Leather group. Options: leather, moonroof, heated seats (and cooled?), leather steering wheel.

            MSRP

            $35,610

            Destination Freight Charge

            $925

            Options Total

            $1,195

            Total MSRP

            $37,730

            Total Cash Offers

            -$1,500

            Price*

            $36,230

            MY14 Regal “Regal” trim.
            Options: Moonroof, heated seats std.

            COST SUMMARY

            MSRP

            $29,690

            Destination Freight Charge

            $925

            Options Total

            $1,000

            Total MSRP

            $31,615

            Total Cash Offers

            -$1,000

            Price*

            $30,615

            http://autos.aol.com/cars-Pontiac-Grand+Prix-2007-GT__4dr_Sedan/

          • 0 avatar

            Hey 28. Just to nag on you a little, maybe you should go out and buy some of the older cars you like so much, so as to build up a little fleet to drive for years to come. The cars and prices you seem to like so much are not coming back. The US printed a whole lot of dollars the last few years and with the recovery, dollars are going back in to the US which all leads to higher prices. As to the cars, the automotive landscape has changed. I know you don’t like but most larger I4 now have the same power of V6s from a couple of years back and the sleeker models you now see in the US are a consequence of cars sold there being more in line with the rest of the world.

            It’s a brave new world my friend!

          • 0 avatar
            bball40dtw

            28-

            Don’t do that math with the new Yukon vs a 2007. Your brain will explode.

          • 0 avatar
            davefromcalgary

            28

            The Church may proscribe me for this, but I would suggest that the 2.0T is a far better spiritual successor to the holy 3800 than the 3.6 is.

            Its torquey, smooth, quiet, and runs out of breath up top, just like the 3800, where as the 3.6 acts just like the modern twin-cammer it is.

            Sources: raised on a 92 LeSabre, learned to drive in an 88 Delta 88, regularly drives dad’s 97 LSS, and current owner of a 2.0T Buick (non-trifecta).

          • 0 avatar
            DeadWeight

            Somewhat OT but I AM VINDICATED!:

            http://www.usatoday.com/story/money/cars/2014/07/22/bmw-buick-consumer-reports-score-regal/12988137/

            Consumer Reports rates Buick Regal as well as MB C250 & BMW 328i (better in some respects), and also better than Cadillac ATS.

            ‘Consumer Reports’: Skip BMW and Benz, buy a Buick

            “Widely consulted Consumer Reports says the latest Buick Regal is about the equal of the much more expensive BMW 328 and Mercedes-Benz C250.”

          • 0 avatar
            bball40dtw

            Dave-

            Are you the Martin Luther of the Church of the 3800? Pope Epsilon II may excommunicate you. Tread lightly.

          • 0 avatar
            davefromcalgary

            bball,

            I am not deriding the 3800 itself in any way.

            Sadly, the 3800 is no longer in production. I am simply trying to figure out which current GM engine short of a small block gives as much torquey joy. Surely not the 3.6.

          • 0 avatar
            bball40dtw

            The 2.0T is the best answer. The 2.3T and 3.5TT mills that Ford has are even bigger torque monsters.

          • 0 avatar
            28-Cars-Later

            That was my last post before I went out to golf and look at the attention it garnered.

            @Marcelo

            You make two good points: 1. That whomever is running my country was so desperate to save the petrodollar empire they blew up the currency to do so and 2. I4s are putting out more power than they used too. We can’t go back and change the past on point one, and sadly those in my country will be unable to lynch the traitors for their actions since our own gov’t will stop at nothing to maintain their power. Regarding the second point, that’s all well and good they got more power out of a smaller engine, but for more money I should be getting more product, not the same product in a different configuration. Especially since the new product cannot match the percentage in the rise of oil since 2003/4. The average oil price as more than tripled since this time frame but fuel efficiency in an I4 vs V6 has maybe risen 30% on average (MY08 W-body 3800 19/25/30 to MY14 Accord 2.4 27/30/36). So same or similar product, same or similar power, 30% more fuel efficient for around 30% more give or take. Stagflation.

            I’ll be sticking to what I like for sure :)

            https://en.wikipedia.org/wiki/World_oil_market_chronology_from_2003

            http://www.fueleconomy.gov/feg/PowerSearch.do?action=noform&path=7&year=2014&make=Honda&model=Accord&srchtyp=ymm

            @bball

            My brain exploded long ago. I think we were talking about Yukons months ago and I crunched the figures, MY09/10 was doing 26+ wholesale with high miles at the time. Retail msrp is probably up at least 30% if not more, since trucks are how The General pays the bills.

            @dave

            My son, thou speaketh of turbo? Blasphemer! Ye has given they spirit into the serpent! Pray to the holy iron block of torque and beg for the forgiveness of the divine.

            @dw

            Evidently you were vindicated, although I would point out to that reviewer Regal != ATS, 3 series, or C330. That’s like comparing the Dodge Challenger to a Civic coupe, apples and oranges. A better comparison would be Regal to TSX/TL, Lincoln Zephyr, or Chrysler 200.

        • 0 avatar
          highdesertcat

          28-Cars-Later, “…and they are by-and-large very overpriced and I would personally struggle to find a realistic model worth buying.”

          I’m not going to rag on you, but if you are thinking that any new cars will ever get cheaper anytime soon, fuggedaboutit!

          I’m not making light of your comment because I myself will be making a couple of new vehicle purchases for MY2015 and MY2016. So I am faced with these higher prices as well. But I know what I am going to buy — that’s already decided.

          And more than likely, these will be the last cars I will buy during my lifetime. I’m getting up there.

          But I stand by my comment of ” this is still a great time to buy that new car. Interest rates are low and repayment periods are long. What’s not to like? And buying that new car will help boost the economy.”

          Bball, Marcelo, Dave, and DW have offered comments that should give you a better perspective and help you reach a decision based on all the facts as you have them.

          All you need to do is strike that balance between your wants and needs.

          The cars are not going to get cheaper, and it is unlikely that interest on loans will go any lower, but they may go longer (if you need to finance)

          In my case, I know what my next new vehicles will be. All I have to do is bite the bullet, and put my money where my mouth is.

          That will happen as soon as the 2015 Sequoia comes out, and then again when the 2016 Tundra comes out.

          Until then, I’m working my butt off to put as much money in savings as I can (because I can’t get financing — I’m not officially employed).

  • avatar
    SoCalMikester

    Stop trying to make subprime car loans a “thing”.

    When the next bubble bursts, it will be because of the way overvalued tech stocks, not because billy bobs lincoln blackwood with 150000 miles got repoed by the local BHPH lot.

    eventually institutions will realize AMZN isnt worth what its selling for and decide to do some profit taking. i think thats whats going to get the ball rolling. right now theyre holding on to their tulip bulbs… but for how long?

    its a good time to be liquid.

    • 0 avatar

      Yes! The next crisis might have something to do with the fact that there are %50 trillion plus in credit default swaps out there. We really don’t know how many there are. Other than the net worth of the issuers, there are NO reserves established to pay claims. By contrast, there are about $7 trillion in insurance contracts in force with actual reserves to pay claims.

  • avatar
    enzl

    With great respect to the TTAC staff, I simply don’t understand this ‘subprime’ fascination…Derek, you are cherry-picking facts to support a theory that, in reality, is flawed.

    It is very simple.

    Credit dried up for those with credit scores below 600, sometimes higher, during the Great Recession — and 04/05 were high water (or low) for loose lending practices. Average transaction prices are up across the board, certainly since 2006. The math of more people getting credit and higher prices = your author’s headline.

    The banks are lending, finally, to ‘challenged’ credit customers. As multiple people above point out, there’s no definition of ‘subprime’ that is readily used. This means that Experian has one idea, Derek has another and the real ‘subprime’ credit criminals we think of when we hear the words are another subset of the populace that are included, but not the only ‘subprime’ population.

    I rarely comment, but this is beneath TTAC’s normal quality and appears to be click bait, in the vein of your former EIC.

  • avatar

    First, for the record, I made the mistake of stating the report that spawned all of the alarmist articles came from Equifax, NOT Experian.

    I just got off the phone with Experian where I confirmed the following.

    First, the average credit score of U.S. consumers took the hit one would intuitively expect, caused by the Great Recession.

    Second, Sub Prime INCLUDES Buy Here Pay Here.

    Third, When credit dried up except for only the highest credit score consumers, many people turned to BHPH or Sub Prime, as one might expect.

    Fourth, Lenders are looking at Near Prime and Sub Prime in a search for yield not available in the highly competitive Prime lending space.

    Fifth, Fast Track credit used to be 690 and above. It is now typically 720 and above. This is the point at which a dealer can just send a contract to the lender without calling it in for formal approval first. There are more strict DTI and LTV parameters as well.

    Sixth, millions of consumers have been able to rehabilitate their credit through Sub Prime financing. AND there will be millions more.

    It has been mentioned that sub prime auto loans are packaged and sold as investment grade vehicles. I will contact credibile sources to determine if there is anything to that. In the case of mortgages, CDOs were constructed where the higher risk mortgages provided some protection for the investment grade and mezzanine tranches. That doesn’t mean the sub prime mortgages were “investment grade.”

    Also, as a matter of record, all mortgages that went bad during the mortgage crisis were NOT sub prime. MANY people with excellent credit walked away from mortgages where they were paying off $450K on a $250K home. Yes, their credit score took a hit and they might have had to get a sub prime auto loan to buy a car. It will take some time to repair all of the damaged credit. This has played its own part in the “slow economic recovery.”

    Also, as a matter of record, mortgages originated based on CRA considerations have OUT PERFORMED the overall mortgage market. The CRA had NOTHING to do with the mortgage crisis. The crisis was not caused by traditional depository banks governed by the CRA. It was caused by Wall Street securitizers who used CDO construction and credit default swaps to gain the coveted AAA rating. They did this because they could, enabled by the blocking of needed regulation of CDSs, not by any CRA considerations. I fail to see any legitimate comparison between auto loans and mortgages. They are two different animals, although the CDS has been used for both.

    • 0 avatar
      ClutchCarGo

      Correct, the CRA had much less to do with the financial panic of 2008 than the Commodity Futures Modernization Act of 2000, which ensured that CDSs and a wide variety of other exotic investment vehicles (that is, bets) would remain unreported and unregulated. A CDS is really nothing more than insurance, yet the seller of the CDS has no obligation to maintain reserves sufficient to guarantee the ability to pay off in the event of default. The CFMA was driven by the financial industry which maintained that the Feds couldn’t possibly know as much as they did, making regulation impossible. CDSs and other unreported/unregulated financial instruments created so much uncertainty that no one was willing to do business with other institutions out of fear that the other guy was larded up with unmeetable obligations. The failure of sub-prime mortgage backed CDOs alone wouldn’t have been bad enough to cause the meltdown on their own. It was the way that their failures made it clear that the Emperor had no clothes.

      IMHO, CDSs should be reported and buyers limited to seeking coverage for their own documented exposure to a risk. The way they work now, a CDS is like buying insurance on someone else’s house, possibly because you know that the owner rewired the whole place using substandard materials. And you may even know this because you sold him the materials in the first place.

      • 0 avatar
        DeadWeight

        You are very spot on in highlighting the devastating effect that The Commodity Futures Modernization Act of 2000 (along with The Gramm-Leach-Bliley Act) had on the U.S. Economy/middle class/consumer.

        These two pieces of legislation, in concert, are probably one of the most pernicious economic atomic bombs to have ever been dropped atop the heads of Americans, contributing mightily to financial devastation of small businesses and American Consumers.

    • 0 avatar
      bball40dtw

      CRA loans only went to $hit in areas where the rest of loans went to $hit too. No one with a $75K mortgage in Detroit that owns a $15K house is paying that note.

      Where I work, we purchased another bank that has CRA penalties imposed (and those penalties are something we have to deal with now). They weren’t doing enough CRA lending, and we still had to buy them up because their loan portfolio was killing them.

      • 0 avatar

        What CRA penalties. The law had no teeth except to put the name of the bank on a list and perhaps thwart any expansion desires. Any loan portfolio was killing lenders when the collateral suddenly didn’t support the money on the street. That impacted all loans and certainly wasn’t cause by the CRA.

        • 0 avatar

          http://www.federalreserve.gov/faqs/banking_12625.htm

        • 0 avatar
          bball40dtw

          CRA had nothing to do with the bad loans. The issue the bank we purchased had to to with Fair Lending, EOCA, and CRA. The DoJ said that they “built a horseshoe around African American populated Detroit” with their CRA portfolio, and that showed an intent to redline. The bank, which had no branches or offices in Detroit, was not treating the Detroit area as a whole. The penalties are severe. We opened a loan office in Detroit, give out rehab grants, and price lending in the city at a lower rate with down payment assistance. Since the area where we put the loan production office is coming back, it has actually been a good move.

      • 0 avatar
        VoGo

        So, this bank’s racist lending policies went hand-in-hand with developing a loan portfolio that destroyed the bank.

        Karma.

  • avatar
    el scotto

    Will we ever see a headline say “X amount of subprime loans get paid off on time! Some Even Paid Off Early!” Or “After 2 years my credit improved enough to get a beter car at a better rate!” Or simply a headline saying “After filing for bankruptcy, I had to take a subprime loan, it sucked, I paid it off, I got on with my life.” I rather doubt it; all of those headlines don’t have any false drama. You also never, ever state if you think most subprime borrowers will stay subprime borrowers. Sadly some will stay in the car payment churn, and others will pay off a high interest loand and move on.

  • avatar

    According to a recent Equifax report, “the number of delinquencies on auto loans is also hovering in record territory — record low, that is. Less than 1 percent of America’s total outstanding loan balance.”

    Richard Read: “What does that mean for consumers like you? Most importantly, it means that, if you’ve been wanting to borrow money for a new or used car purchase, now might be a good time to do so. According to Dennis Carlson, Equifax’s Deputy Chief Economist, “Lenders are responding to record low delinquencies by offering great rates and terms, while consumers are responding to the improving economic conditions by making the decision to purchase newer vehicles.”

  • avatar
    dwford

    Subprime in and of itself is not a bad thing. Banks make tons of money on subprime loans, with double digit interest rates and upfront bank fees. When dealer finance guys fudge the applications to make it appear like the customer makes more than they do to get them approved – disregarding their ability to repay the loan to get the commission, that’s when the problems start. Consumers play a role in that scenario as well, signing up for a payment they must know they can’t afford.

    A big problem in the crash was people being upside down in their auto loans in the same way they were upside down in the homes. People had gotten into the habit of trading their cars frequently and refinancing the negative equity onto the new vehicle. People did that a couple times and quickly became trapped in a very high payment and a vehicle worth much less than they owed. They became a prime voluntary repo candidates. I saw it all the time.

  • avatar

    RE: “Subprime in and of itself is not a bad thing. Banks make tons of money on subprime loans, with double digit interest rates and upfront bank fees.”

    Seems you forgot to add in the huge costs of collection, repossession, and deficiency. Why leave that out? Do you think this people actually pay regularly without incident?

    RE: “When dealer finance guys fudge the applications to make it appear like the customer makes more than they do to get them approved – disregarding their ability to repay the loan to get the commission, that’s when the problems start.”

    So exactly when does that happen? Do you think sub prime lenders are ignorant. A lot of sub prime paper is held by the dealer. Do you think the dealer fudges himself?

    RE: “Consumers play a role in that scenario as well, signing up for a payment they must know they can’t afford.”

    You state this as if it is a pervasive fact. It isn’t.

    RE: “A big problem in the crash was people being upside down in their auto loans in the same way they were upside down in the homes.”

    Not even close. Most everyone is upside down in their auto loan from the beginning. Auto loans and the mortgage crisis have so little in common it isn’t worth talking about.

    RE: “People had gotten into the habit of trading their cars frequently and refinancing the negative equity onto the new vehicle.”

    Actually, people have been trading vehicles much less often than before.

    RE: “People did that a couple times and quickly became trapped in a very high payment and a vehicle worth much less than they owed.”

    Well, the bank has to approve adding in the negative equity and that only happens for the best borrowers. LTV is a big deal to lenders even though it isn’t the same formula as for a house.

    RE: “They became a prime voluntary repo candidates. I saw it all the time.”

    Anyone is a default candidate if they can’t or don’t make their payments. Many people with negative equity go to a domestic dealership to get a rebate to help bring the LTV in line with a lenders requirements.

  • avatar

    RE: “Your FICO score is a measure of how much money banks expect to profit from lending you money, not your creditworthiness.”

    Where did that come from?

    RE: “People who are the most creditworthy do not have the highest FICO scores, because we don’t need to borrow money often.”

    People who pay cash probably don’t have scores as high as people who buy on credit and pay off regularly and early. That is not to say they have low scores. A person with no history… well, has no history. What would a lender have to go on? The yield on loans to the highest credit tiers don’t make much money for lenders, especially these days.

    • 0 avatar
      Fred

      My credit score is 813, which I understand is pretty good. I’m a good risk, but I don’t think they make much money off me. I tend to pay cash or pay off my credit card every month. I paid off my mortgage early too.

      • 0 avatar
        highdesertcat

        Fred, good for you! More people should follow your lead. More people should live within their means, but that is unlikely to happen in America.

        “People with no history… have no history” Sage words, indeed, from ruggles.

        I don’t even know what my FICO score is, since I haven’t had a history since 1985. Nor am I interested in finding out. I hope to never have to borrow money for anything for the remainder of my life.

      • 0 avatar
        Hillman

        They do charge the vendor a good 2-3% of what you pay with a credit card. Not a bad return even if you pay it off every month.

        • 0 avatar

          Yea, its a great business model. The merchant gets paid up front, everyone gets the records they need, consumers get convenience, neither consumer or merchant has to carry a lot of cash….. then there is the fraud collection. Its not like CC issuers get to keep all the money. Its not really a “return” until expenses are paid.

    • 0 avatar
      VoGo

      It came from working in financial services for nearly 30 years. Look, a high FICO tells banks they can lend you a lot of money and you’re less likely to default. Which is another way of saying that you are able to pay them a lot of interest. That — and all their bogus fees — is how consumer banks make money.

  • avatar

    RE: “Deadbeats come in all flavors, wasn’t that the point of things like FICO in the first place a better metric for identifying higher credits risks?”

    All deadbeats are not created equal. Bad things happen to good people. WHile credit scoring has been around for a while it really became refined when the CRA caused lenders to be able to prove why they denied or granted credit to someone.

  • avatar

    Didn’t there used to be an “edit” function?

    • 0 avatar
      Lorenzo

      There still is, but occasionally it’ll tell you that you don’t have permission to edit the comment you just made. It also doesn’t like some browsers and does strange things with the edit function, like dropping the wrap around display so you can’t even see the entire sentence you’re trying to edit. These are known as “glitches”.

      • 0 avatar
        highdesertcat

        There is no edit function when using Safari and OS7.1.2 on an iPad Air.

        And in Windows 8.1 it will come back with the “you don’t have permission to edit the comment you just made” after you hit the edit function.

        Other than these two anomalies, the edit function works without problems in most current and up-to-date versions of Win7, Vista and XP.


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