Months after TTAC started to relentlessly bleat about the glut of money flowing into the auto loan sector, the mainstream media is finally taking notice. Automotive News is finally expressing some worry over the factors that we’ve been discussing for some time: car loan terms are getting longer (to help keep payments low), subprime lending is increasing and an expected rise in interest rates could put an end to the new car market’s exuberant performance.
GM Canada’s CEO is expressing apprehension over the way cheap auto loans are fueling vehicle sales in Canada.
While the engine behind the exceptional growth in new car sales is a hotly debated topic, leasing is proving to be an undeniable catalyst behind this year’s impressive new car sales numbers. Through June of this year, leasing accounted for 25.7 percent of new car sales, versus 22.2 percent in 2012. A decade ago, that number stood at just 17.5 percent.
Over at Autobytel, Juan Barnett (better known as DC AutoGeek) takes a look at the history of auto financing, originally intended as a way for the common man to be able to afford an automobile some 90 years ago. The most striking thing is how attitudes have changed so dramatically over time.
Initially, bankers were calling for a ban on financing of personal automobiles, fearing that it would lead to financial imprudence. How times have changed.
In a 2008 letter to the Security and Exchange Commission, a collection of automotive finance companies argued against a proposed federal rule that would have made 60 months the maximum term for an automotive loan. The group said “[that the] 72 month term has become the industry standard,” and that it was critical to the American economy to allow banks to determine independently the risk as it relates to automotive loans. They argued that any mandated term limit would cripple the automotive industry. They were probably right.
Bad news on the subprime front, as credit rating agency Experian reports a rise in delinquencies and repossessions for auto loans in Q1 2013.
Melinda Zabritski offered a rather dubious explanation for the nearly 17 percent rise in repos (as well as the 1.3 percent uptick in 30 day delinquencies and 12.4 percent rise in 60-day delinquencies) (Read More…)
Anyone looking for an anecdote illustrating the QE-fueled madness that is subprime auto lending, take a look at this Reuters report on what constitutes a down payment in the subprime world.
And still, though Nelson’s credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara.
All the Nelsons had to do was cover the $1,000 down payment. For most of that amount, Maloy accepted Jeffrey’s 12-gauge Mossberg & Sons shotgun, valued at about $700 online.
Long-term auto loans, leasing and sub-prime financing all saw increases year-over-year from 2011 to 2012, according to a report by Experian, a consumer credit rating agency. While typically a dry and detail-oriented subject, the area of auto financing gives us some insight into the nature of the new car market and even the economy itself.
Coda Automotive withdrew a Department of Energy loan application after two years of waiting. The $334 million loan was supposed to have gone towards establishing an assembly plant in Columbus, Ohio, but for now, production will continue in China.
Today’s a big day for beleaguered automaker Fisker. The company announced that former Chrysler CEO Tom Lasorda would be joining the company as its new CEO, after joining Fisker’s board in December.
Republican leaders in the House of Representatives want to halve the balance of a U.S. government loan fund established to help the auto industry make more fuel efficient cars and trucks.
If plans to shift some $1.5 billion from the Energy Department advanced technology fund to disaster assistance are carried out, serious questions would be raised about Chrysler’s ability to fully capitalize on its bid for new financing.
That the DOE loan program is under attack comes as no surprise: it’s been savaged by both the GAO (twice) and the Center for Public Integrity for a lack of clear goals, weak oversight, misappropriation, and political patronage (more on the patronage bit here). And with the Solyndra DOE loan scandal blossoming, it’s no surprise to see ATVM going under the axe (although Rep Steny Hoyer is leading the Democrat pushback). What’s worrying about this development, however, is that Fiat-Chrysler CEO Sergio Marchionne has said that the DOE loan was “a crucial part” of negotiations over its recent Wall Street bailout loan refinancing. When GM quit the program earlier this year, Marchionne also said that
I have neither the arrogance nor the cash to show any disdain toward the DOE process.
Chrysler also cites its ability to secure the DOE loans as a major risk factor in its latest 10-Q SEC filing. And with only about $10.2b in cash and equivalents on hand at the end of June, there’s a chance that this attack on the ATVM loan program could deal a body blow to Chrysler’s finances. Here’s hoping Sergio has kept the runt of the bailed-out automaker litter from dependence on this apparently corrupt, and politically vulnerable loan program.
With the environment taking an ever-larger place in automotive advertising, it’s interesting to note that Fisker’s latest brochure puts green in its place: behind sexy. Of course these sultry images [via BusinessInsider] aren’t free from environmental overtones, featuring taglines like “designed to get you hot, not the planet,” but it’s clear that Fisker is more heavily relying on the most traditional tool in the advertising playbook. Why? For one thing, even though Fisker is delivering Karmas, the EPA has not yet certified its efficiency rating… so we don’t even know how environmentally friendly it is yet. For another the Karma’s main rival, Tesla’s forthcoming Model S, is pure electric and therefore more appealing to wealthy environmentalists. Finally, unlike environmental messaging, sex doesn’t remind people that Fisker was the beneficiary of over half a billion dollars in government loans. Plus, sex is still, well, sexy. The more things change, the more they stay the same…
The Department of Energy’s Advanced Technology Vehicle Manufacturing (ATVM) loan program has come under fire from the Government Accountability Office before, and was the subject of a patronage investigation by the Center for Public Integrity and ABC News. And the bad news keeps piling up, with yet another nasty GAO report [PDF] taking the program to task for running up higher-than-expected lending costs due to “industry risks” and for failing to provide required technical oversight.
When Chrysler celebrated its payback of “every penny that had been loaned less than two years ago” last week, I noted that CEO Sergio Marchionne’s triumphant line was technically correct, but hardly represented the whole truth of the story. I pointed to $1.5b in supplier aid that helped keep Chrysler afloat, as well $1.9b worth of the Bush Administration’s “bridge loan” to “Old Chrysler,” prior to its government-guided bankruptcy and sale to Fiat. Apparently my more-inclusive accounting of the price of Chrysler’s rescue (which was picked up elsewhere in the online media) caused Mr Gualberto Ranieri, Chrysler VP of Communication, to spend some part of his Memorial Day Weekend writing a response of sorts, outlining Chrysler Group LLC’s perspective on the situation. Hit the jump for Ranieri’s statement, and my brief answer to the headline’s question.
As Steve Rattner described in his book “Overhaul,” the Presidential Auto Task Force very nearly decided not to rescue Chrysler, with the decision coming down to a single vote. Now, it seems, that with Chrysler blaming the “shyster” interest rates on its government loans for its lack of profitability, Chrysler’s viability now depends on rounding up a “lender of second to last resort.” And, according to the latest reports, that rescue-of-a-rescue effort is still very much hanging in the balance as well. If CEO Sergio Marchionne thought the government’s loan terms were “shyster”-ish, he was clearly in need of some context from Wall Street… and he doesn’t seem to be liking it.