By on May 17, 2018

Flicker

Grunge was on its way out the door, Pepsi aficionado Bob Dole was challenging William Jefferson Clinton for the keys to the White House, and the Ford Contour was still a relatively new sight on American roads.

That was the last time this many U.S. car owners fell way, way behind on their subprime auto loans.

According to Fitch Ratings (via Bloomberg), the delinquency rate of subprime auto loans hit 5.8 percent in March, a figure not seen since 1996. Even during the recession, the number of buyers with payments more than 60 days past due just barely nudged over 5 percent.

Following a recession-era spike in subprime car loan defaults, the rate climbed steadily from about 2011 onwards, surpassing the peak of that earlier spike in 2015. Delinquency rose as lenders began approving an ever-greater number of auto loans in the years after the economic downturn — many of them to buyers with poor credit scores. In recent years, “deep subprime” loans emerged as a concern.

For automakers, the explosion of auto loans, including subprime ones, during the economic recovery helped push the industry to record sales volumes. We’ve since hit a plateau.

Just one year ago, the number of auto loans classified as such (basically, customers with a FICO score below 550) reached nearly a third of all subprime loans. Naturally, lenders were urged to proceed with caution. According to Equifax figures from January, it seems some took that advice to heart — between January 2018 and a year earlier, the number of auto loans and leases approved for subprime car buyers fell 10 percent.

As for who’s approving the riskiest loans, Equifax points the finger away from the big banks.

“Neither banks nor credit unions have done ‘deep subprime’ lending,” Gunnar Blix, deputy chief economist at Equifax, told Bloomberg. “That’s mainly done by smaller dealer-finance and independent finance companies” (that rely on asset-backed securities to stay afloat).

[Image: EveryCarListed P/Flickr]

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92 Comments on “Subprime Car Buyers Haven’t Defaulted This Much Since ’96...”


  • avatar
    cartunez

    Strange in my neck of the woods they are begging anyone with a pulse to work. If we are seeing huge defaults in this type labor market whats really going on.

    • 0 avatar
      dwford

      Perhaps it is today’s more common culture of “me first.” Many people just don’t know how to handle money, and spend on themselves first, then wonder where the money went when the bills come in. I know several millennials with bad credit, and a common thread is spending on whatever is of interest right at the moment, bills due next week be damned. Even when they get a lump sum like a tax refund, they don’t pay the bills that are behind. The comment on that idea is “F them.”

      This is the same thing we saw in the mortgage crisis – mortgages being given to people with low credit scores and a low desire to pay a monthly bill on time vs spending on pleasure items.

      • 0 avatar
        JMII

        Yep. People just buy too much of a vehicle. Same problem with home loans. Seems nobody learned their lesson. For example we are doing a kitchen remodel and got approved for TRIPLE what we asked for. The bank was begging us to take the extra money.

      • 0 avatar
        Lou_BC

        Those who are typically at the low end of the socioeconomic spectrum behave differently partially because of the fact that they aren’t familiar with the concept of intermediate and long term security. In other words, they don’t have any stability.

        A simple study done to test “will power” found that “lower class” children (my term not theirs) when offered “one marshmallow now or two later” consistently went with the “one now”. Middle and upper class kids easily put off short term pleasure for long term gain. If you feel you have no future, “take it while you can get it” is the modus operandi of choice.

        Impulse control is an issue but ultimately it is a case of developing proper behavioral patterns. Successful people are taught that from birth or pick it up innately. Others need to be taught and obviously, a certain percentage of the population will never learn.

        • 0 avatar
          JMII

          I get that Lou, but aren’t the dealers or banks also to blame here? I’m not sure how they calculate how much you can afford per month, but my math never aligns with theirs. Sure I could easily afford an insane monthly payment but then I wouldn’t be able to eat, have running water or electricity. Not that any of that would matter as my rent or mortgage check would have already bounced.

          • 0 avatar
            Lou_BC

            @JMII – I do agree that financial institutions and vendors are more to blame. They prey upon human nature’s flaws for short term financial gain. I was simply pointing out why some people cannot manage money.

          • 0 avatar
            brn

            It’s a society thing. Society as a whole, not just the lending institutions, wants everyone to have everything. Why do we encourage zero down payment on homes? It used to be 20%. Not everyone “deserves” a house. If people can’t afford cars, why are they buying SUVs?

            Society is teaching people to be this way.

          • 0 avatar
            highdesertcat

            brn, not too long ago we had NINJA loans and the result was the collapse of 2008/2009.

            Ditto this go’round.

            People getting approved for loans who have no business even taking out loans because their financial obligations already overburden them BEFORE the loan is let.

            How soon we forget…..

        • 0 avatar
          dwford

          I read that study. Very interesting. Probably also explains why wealthy people who lose it all end up regaining wealth.

          • 0 avatar
            highdesertcat

            With wealthy people it is often their “educated gamble” ventures that don’t work out as hoped.

            This allows them to double down on past ventures that did work.

            Excellent example in everyday life is the Real Estate business. It’s difficult to fail there, unless a person is just plain stupid, because people will always need a place to live.

        • 0 avatar
          qwerty shrdlu

          Try re-running the experiment after welching on the “two later”.

          • 0 avatar
            Lou_BC

            @”qwerty shrdlu” – There is a huge subset of the populace that have been “welched” out of any stable future by politicians on both sides of the political isle which to a great degree explains the US’s current president and the wave of populism hitting many countries in the world.

      • 0 avatar
        Lorenzo

        The phrase “take care of the luxuries, and the necessities will take care of themselves” was supposed to be a joke. You’re right – a LOT of people don’t know how to handle money.

        They don’t teach it in school, though home economics classes used to include household budgeting. The problem there is the schools are geared for sending kids to college, and home-ec is decided ly NOT part of that college-prep curriculum.

        There seems to be no complaints about people spending their entire paycheck, with no thought of saving, and if they calculate anything, it’s how much of a payment they can take out of that paycheck to buy what they want. It may be great for business NOW, but when these people reach retirement age, they’ll be wards of the state, since they haven’t saved or invested.

        Kids today have to learn how to balance a checkbook on the streets, where they should be learning about sex!

    • 0 avatar
      healthy skeptic

      Wages have not been keeping pace with growth. Might be one explanation

    • 0 avatar
      arach

      I know plenty of people who make boatloads of six figure annual cash yet somehow have bad credit and are on the verge of going belly up…

  • avatar
    x-defector

    Let’s see…gov’t manipulating the currency for the last decade to keep lending rates artificially low – check. Dramatically over inflated housing market – check. Low unemployment – check. Enormous guzzler wagons dominating the roadways – check. Cheap gas – check. Legislators drafting financial-based initiatives based on feelings instead of thought – check.

    I’m shocked at this news…said no one, ever. Feels like 2008 all over again…

  • avatar
    Tele Vision

    People are stupid. It’s really that simple. The used car market is awash with cheap and good cars, from Ladas to Lamborghinis. I’ve purchased one new car in my 31 years of driving. One. I likely won’t ever buy a new car again as the benefits don’t outweigh the costs by a long shot. Currently my F-150 was two years old when I bought it ( at nearly 40% off new ) and my CTS-V was seven years old ( 80% off new ). They both work as advertised and, with normal regular maintenance, will continue to do so for a long time. I bought both with cash on the barrel that I’d easily saved whilst driving my previous used car. No debt – no problems.

    • 0 avatar
      DeadWeight

      Used vehicles have only begun to crash at the wholesale level, which will filter down to the retail level (regardless of the sell-side’s insane posturing/analysis as to why this won’t affect retail, such as idiotic channel check arguments), and are going to be one of the few exceptions to the inflationary boom about to break the business cycle expansion and consumer credit binge.

      • 0 avatar
        hreardon

        Tend to agree, DeadWeight: we’re right on the cusp of a big inflationary spike and I think the Fed knows it. The problem is that a sudden spike in interest rates is going to be pretty devastating to everyone who took out massive loans thanks to low interest rates – and will also put a big world of hurt on entire “subscription” economy.

        A one two punch of rising interest rates and oil prices is going to be bad.

        • 0 avatar
          DeadWeight

          The question is whether we’ll see a commensurate or larger deflationary period after the inflationary spike, ala 2007-2010 (prices on everything from vehicles to raw materials to homes to RVs/boats to electronics and machine tools fell by as much as 40% -‘remember the blowouts on cars and trucks, houses new and used falling 50% or more in value, oil at $35/barrel – all in 2010?).

          The divergence between the headline stories about the underlying strength of the economy and the reality is pretty wide right now, and growing, IMO (and this is happening at a time when some sectors are having some trouble finding LABOR – as in entry-level to moderately experienced workers for the most part -‘partly because they don’t want to pay up or offer comprehensive health insurance); even professionals in accounting, management, law, finance, etc., are finding wages sticky, and cost of benefits like healthcare being shifted on to them more with each passing year, which equals wage deflation in real terms.

          T0Here is a microcosm of what the future holds for many and it should scare almost anyone here unless you’ve banked SERIOUS $$$ and have assets and a fat income stream independent
          of an employer:

          Charlie LeDuff Gets ‘A Little Bit of Real People’ in Detroit (Pulitzer Prize Winning 52 yo Charlie LeDuff Works Hot Dog Job for the Health Insurance):

          Charlie LeDuff Gets ‘A Little Bit of Real People’ in Detroit

          http://serendeputy.com/d/c71bf6230d

          • 0 avatar
            hreardon

            “The question is whether we’ll see a commensurate or larger deflationary period after the inflationary spike”

            That’s the million dollar (billion?) question. I’m sure there are people making bets on both side of that trade, as we type.

            I can tell you that wage pressure in the professional services world (technology, in particular) is crazy at the moment. I have had three candidates for $95,000 positions balk while at the altar because they had friends who were recently offered $125k-$150k for similar positions. It’s ridiculous.

            Healthcare costs are equally frustrating right now, but in my field the real issue is wage pressure.

    • 0 avatar
      MrIcky

      “Currently my F-150 was two years old when I bought it ( at nearly 40% off new )” …this is the problem, I just looked at NEW trucks that were 30% off. I think DW is right- used car deals are coming again. But right now, except for luxury cars which depreciate much faster than most vehicles, there really isn’t that much price benefit to a late model used car.

      • 0 avatar
        Lou_BC

        30% off of new trucks is common. There isn’t much benefit to going used with those kind of deals.

        • 0 avatar
          Tele Vision

          Well, I got a two year-old 2010 Ford 4X4 truck with 8000 Kms on it for just under $20,000. It sold for $32,000. I’ve never seen a $12,000 discount on a new $32,000 truck at a dealership and I never will. The initial owner, in addition to fuel and running costs, lost $0.66 in depreciation for each of those 8000 Kilometres – and was apparently fine with it, as he wanted an EcoBoost. I made out like a bandit due to his indifference to financial loss. Incidentally, that difference nearly paid for my 2007 Cadillac, which was $75,000 new only three years earlier than my truck. You’d be hard-pressed to get $107,000 worth of vehicles for $35,000 – even with dealer ‘discounts’. Payments are designed to look easy but they’re a trap for the unwary and ignorant. Used is the way to go if you have the ability to both pay cash and wrench a bit.

          • 0 avatar
            Lou_BC

            @Tele Vision – my mid-spec XLT SuperCrew 4×4 F150 had 12k on the hood plus a 1k Costco discount.

            Many of the local dealers in my area carry a large number of fleet spec 1/2 ton trucks and at year end, they have offered up to 8k for brand new.

            If, as in your case you are able to find a low mileage truck with a great price, it makes sense to buy it. Dealers tend to mark up “good” used stuff close to knew prices to catch unsuspecting buyers.

            I personally could not find ANY supercrew 4×4’s in good shape cheaper than what I bought. In 2010 I was shopping around for a friend who wanted a used truck. I bought new and he bought used. Guess which one of us got pizzed off when we compared prices?

      • 0 avatar
        TwoBelugas

        “this is the problem, I just looked at NEW trucks that were 30% off”

        This!

        I got my 2500 new at ~28% off MSRP and the discounts were deeper percentage wise on the diesels since they cost more, but I controlled myself.

        I’m on track to paying mine off in 18 months. It’s not rocket science, you throw money at the loan as if it’s your ex-wife who re-married a mob capo.

        :D

        • 0 avatar
          Lou_BC

          @TwoBelugas – agreed. I prefer to buy new and have paid off my vehicles s quickly as possible.

          • 0 avatar
            shane_the_ee

            Why? I always go in thinking I’m going to pay cash and come out with 100% financing and an intent to pay it off as slowly as possible. I mean, two weeks ago we picked up an Expedition. Ford finance offered a 48mo loan for 0.5% LESS than two year treasuries. Why, yes, I will take the arbitrage on that deal, thank you very much!

          • 0 avatar
            DweezilSFV

            @ Shane: After depreciation, maintenance, registration, insurance and taxes any “arbitrage” you’ve done is eaten up on a unit of cost compared to a treasury.

            But if it makes you feel good…..

        • 0 avatar
          brn

          As is the answer with most things, it depends.

          I’ve purchased two new cars in my life. Both times, the price difference from a slightly used version of the exact same car was about $1000. For such a minor price difference, you bet I’m buying new. My current car, I purchased used.

        • 0 avatar
          Tele Vision

          The guy I bought my truck from also got a deal when he bought it new. I just compounded it!

    • 0 avatar
      redgolf

      point counter point to Mr. “Tele Vision” – i totally disagree with people being “stupid” for buying a new vehicle! while it’s true you’re going to spend less on a used car at first it’s not always true you’re going to keep it running with “normal maintenance”! you can easily spend thousands keeping a used car running not to mention the little nickel dime items it takes! I’ve bought used most of my life also and escaped with normal wear and tear maintenance on most getting a fair value back on most when selling them, however, in my older years with a more stable income, house paid for, children raised and out of the house, the peace of mind of new car ownership can’t compare to the dreaded worry and expense of used, especially when wanting to go out of town! i’m not talking high end rides $50k plus but moderately priced within my budget! many good reasons to go new, more reliable, safer, better mileage, no cost under warranty maintenance ( GM offering life long power train warranty as others also) not having to worry when my wife of 50 years breaks down driving used! PRICELESS! you don’t still have your old CRT TV do ya? ha ha ha !!! had one for 25 years, gave it away and bought NEW!

      • 0 avatar
        Tele Vision

        When I mentioned ‘stupid’ I meant people buying a vehicle they could only just afford, then paying for it long after the warranty was up – effectively paying ‘new car’ money on a used car for several years. The same capability is available for half or less of the cost of new but only if you have cash ( or a loan, I guess, but other than my mortgage I avoid them ). Buying used will get you a better car than you could get new with the same money. Better cars are just better and they don’t lose quality with age like entry-level crapshacks do. A few repairs might be in order, sure, but you don’t move out of your house when the carpet gets dirty, do you? No, you fix the issue and all is well. Regarding cars, an OBDII check; a flush n’ fill of all fluids: and you’re off to the races. I don’t buy AWD/FWD/CVT cars as they’re beyond my capabilities to fix. RWD/4X4 cars are easy to take care of with a hoist and tools – which I have. I have an old rear-projection flatscreen laying around in the car hole, generating its own gravity, but that’s only because I want to pull the speakers out of it!

        • 0 avatar
          redgolf

          you can get a car loan on used cars so long as it’s 10 years old or under by most lending institutions and a lot of low/moderate income people do and most are out of warranty and most already require some kind maintenance that’s why they are traded in or sold by their owners! tires, batteries , brake job etc. then hoping the engine and drive train hold up! so going new makes a lot of sense to a lot of people who are not mechanically inclined and don’t have the tools let alone a “lift” in their garage or even a garage for that matter or they go get a cheap/reasonable lease that may be the difference of only $50-$100 per month from buying used! got a lot of cash do ya, well raising a family these days takes a lot of money, many divorce and that’s when the real money problems start! alimoney (ha ha ) child support, DUI’s (loss of driving privileges) these are the ones paying cash for clunkers ( or pay by the week) because they can’t get loans!

          • 0 avatar
            Tele Vision

            Easy, there, redgolf. I like working on cars. I don’t have a hoist in my garage but I have one at work that I can use after hours or on weekends. Most of my friends at work wrench on their own cars there to save money – newer cars and old trucks and hot rods. Case in point: I just replaced the front rotors and the starter motor in my CST-V. CDN$380.00 in parts. Free labour. That would have cost me well over CDN$1200.00 at a shop or, worse, a dealership. Also, I have a young family which is primarily why I subscribe to the theory of ‘Let Someone Else Take The Depreciation Hit’. It’s served me well and has saved me dozens of thousands of dollars over the years. YMMV.

  • avatar
    DeadWeight

    I’ve been on on a data bender with the corollary meetings and alsl private conversations, and we’re on track for incoming economic problems that will echo 1979-1982 due to real inflation that’s white hot, and well above officially measured and released BLS figures.

    Inflation, particularly in the areas of housing (including prop taxes), health insurance, tuition, along with now spiking fuel/energy/utilities, is devouring the disposable income and decimating the savings rate of all but the top 5% (arguably the top 2% given that even the 3% differential there are not seeing wages rise – even in business/professional/managerial sector – enough to offset expensive portions of the urban areas the reside in.

    PPI inflation has been running hot for 5 years now (especially in last 2) and is actually picking up a full head of steam.

    Couple the inflationary surge with the rampant malinvestment (think everything from # of hotels to restaurants to apartments to even more retail space) built since 2012, and there’s a legitimate, empirically-based case that we peaked in the business and consumer cycle in the summer of 2015 and have been floating along on a tidal wave of government, corporate and household debt issuance since then.

    • 0 avatar
      twincamry

      DW,

      Long time listener, first time caller.
      Always have liked your comments. Especially; now with Cadillac and Ford articles. Good insight.

      On this topic. Where are you getting your data from? Anything public? I want to make sure I am getting a full picture of how this is going to play out/end.

      Right now I pull from:
      http://www.freddiemac.com/research/
      https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm
      https://www.chicagofed.org/research/data/cfnai/current-data
      https://www.occ.gov/annual-report/index.html
      https://www.newyorkfed.org/press/index.html#press-releases

      What else do you think is good or gets a better picture?
      Thanks!

    • 0 avatar
      highdesertcat

      DW, I agree with what you wrote, but would like to add that not everyone is equally affected, or will be equally affected.

      Many individuals who saw this coming during the waning days of the last administration curbed their spending and reduced their wanton purchases and consequently are now better off and will continue to be better off than the majority of others.

      One such trick to not having to default on a loan is to not buy/take out the loan to begin with.

      • 0 avatar
        Lou_BC

        So much for MAGA.

      • 0 avatar
        Big Al from Oz

        HDC,
        Judging by your previous input here at TTAC you are one of those who didn’t see this coming.

        Loans or borrowins aren’t necessarily bad. It’s how and what you borrow for.

        • 0 avatar
          highdesertcat

          You are right in that I did not see the Trump effect coming.

          Sometimes the optimism inspired by the Trump effect inspires people to borrow more than they can afford, because the promise of the future looks so good.

          If a person could not afford their lifestyle BT (before Trump) they sure as hell could not afford their lifestyle DT, unless they got swept away by the upward mobility many of the employed are enjoying now.

          But as far as loans and borrowing go, I have always been extremely averse to loans and borrowing, primarily because during the period July 1985 until Dec 2015 I never had much money.

          My “European” upbringing and philosophy dictated that “If I couldn’t afford it, I didn’t need it,” and “If I didn’t have the money for it, I’d have to do without it.”

          That’s ONE reason why I kept all of my liquid assets after 2008 in CASH and all my transactions sans paper trail, except for a receipt.

          Money is fungible and the best way to obfuscate, misdirect and hide transactions is to display them in plain sight.

      • 0 avatar
        bd2

        Right, it was the previous admin that was the problem and not the one BEFORE it (much less the Republicans having had their way with economic policies – which time and time again, have led to financial collapses).

        The whole notion that Republicans are the “financial conservatives”
        is a JOKE.

    • 0 avatar
      Sals

      Most economics is over my head, but anyone buying groceries sees inflation close up. The BLS figures always seem low. I stumbled across this site – http://www.shadowstats.com/ – interesting reading.

    • 0 avatar
      Big Al from Oz

      DW,
      The US is heading for a recession, a big one.

      One thing you didn’t mention is how far overvalued the markets are as well.

      I believe QE, even saving GM, Chrysler and Ford (Ford borrowed $24 billion, interest free with a generous repayment schedule) was a bad move.

      I believe a global readjustment will occur. Many countries will fall over and there will be no ponzi work around.

      The initiating countries will be the US and UK. The US has been unsucessful at restructuring itself. Add to this the instability in global trade created by the Trump junta and the geopolitical he’s creating is the icing on the turd.

      The US if times get tough will also encounter many countries that will not assist as closely as you would think.

      The UK with Brexit is in a static and unpredictable cycle.

      Buy gold.

      • 0 avatar
        DeadWeight

        China is extremely vulnerable to a massive economic crash (not recession, but steep, sudden, and long-lasting crash in terms of GDP, liquidity, and job-letting).

        They have FAR more debt than officially acknowledged, there are few social safety nets in place for workers, and they are extremely susceptible to a severe downturn in demand, both from their trading partners and domestic consumers, in the types of goods and exports that they specialize in.

        • 0 avatar
          Big Al from Oz

          DW,
          China is quite vulnerable, but I think the US is more so.

          China has a large weakness in the way the country is managed. Control and accountability.

          The Provinces are squandering borrowed money on very poor investments, from government business, including manufacturing to infrastructure.

          The disconnect between the Central Government and Provinces is quite weak, almost semi-autonomous.

          The strength of China is the Central Government. China can ride out an economic downturn far better than any Western/OECD economy. China can and would influence the Provinces and people.

          The US on the other hand has a couple areas of weakness. The lack of enough flexibility in certain areas of it’s economy. The motor vehicle industry is a classic example.

          The second and significant area of weakness is the loss of influence. Since the end of Reagan the US has lost influence and has yet to realise it by many in government and society.

          Trump, external to the US has degraded US influence far more than many commenters on this site realise. The US has the largest military, but the military power doesn’t make a country great. Kim Dim Sim of Nth Korea needs to realise this as well.

          What made America great, is the people.

      • 0 avatar
        junkandfrunk

        US birth rates are declining at a record pace. The millennial generation is now at the period in their lives where they would generally have children, but are choosing not to in order to pursue personal goals such as travel, inner-city living, and career-development, or because they are unable to afford to have children either outright, or in concurrence with their lifestyle. Lower death rates of the Baby Boomers due to medical advances and positive net immigration is currently keeping the population growth up.

        However, the latter may slow and stop altogether both due to the current administration and any major recessions, as was seen back in 2008 when net immigration with Mexico fell to zero. The former will not catch up until thirty to fifty years from now, as barring any significant advances in lifespan extension, boomers born between 1945 and 1965 will be mostly gone.

        At that point, there will more than likely be the beginnings of population retraction, similar to what Japan is facing now. In the grand scheme of things outside of the stock market and the macroeconomy, this is largely good. Fewer people means fewer resources are needed to sustain the population, and populations will trend more towards being centered in major urban areas, returning outlying areas to nature and polluting less and less.

        While it is very likely that these population retractions will cause some economic chaos because in the market, only growth is good, with the advent of technology and the increased productivity per worker, it could mean that economic growth may continue even if population decrease happens. Time will tell.

        • 0 avatar
          Big Al from Oz

          junkandfrunk,
          The US has enough immigration to counter lower birth rates.

          That’s why Australia has the largest immigration rate in the World.

          Young people entering the country can provide for the future.

          The problem is how long can you have accelerated immigration. It’s not sustainable for eternity.

  • avatar
    "scarey"

    Well, I will not bring politics per se, into it, but our standard of living has been declining for about 45 to 50 years due to the growth of government and government spending, made possible by the abandonment of the gold standard. (Take my word for it.) And the shipping of jobs to other countries. As a result, retailers have had to adjust constantly to worsening conditions. Big, systemic changes will have to be made to reverse the direction we are going Something about MAGA, I think it is called.

    • 0 avatar
      Arthur Dailey

      Your theory has been disputed by others. For instance the decline in the standard of living in the USA directly corresponds with the decline of union membership/density.

      And the previous increases in the standard of living in the USA, correspond almost directly with increases in union membership/density.

      The growth of government and government spending also has little correlation to the decline in the American standard of living. For example it did not fall during WWII when American government and government control and government debt reached ‘normalized’ records. And it did not decline during periods of ‘small government’ Presidents since 1975.

    • 0 avatar
      DeadWeight

      gini coefficient

      http://www.lcurve.org/images/LCurveFlier2003.pdf

    • 0 avatar
      dal20402

      The functional abandonment of the gold standard happened earlier, after World War II. And it preceded the most prosperous 20 years the US (or at least its white residents) has ever known. The gold standard is mostly a way to make sure that if some miners in Africa have a bad day then everybody has a bad day.

      The problem is about a three-legged stool of policies that Republicans and the sort of Democrats who get elected both agreed on starting in the late ’70s:

      1) Eviscerated antitrust enforcement
      2) Owner-friendly labor laws and labor regulators
      3) Shifting the burden of taxation from capital to labor

      Reverse these three things and you would see a middle-class renaissance, although a lot of yachts and third homes would go into foreclosure.

      • 0 avatar
        Lou_BC

        @dal20402, @DeadWeight, @Arthur Dailey – Agreed. Both sides of the political spectrum have sold out to the top 1-2%.

      • 0 avatar
        "scarey"

        Gold standard-In August 1971, Nixon severed the direct convertibility of U.S. dollars into gold. With this decision, the international currency market, which had become increasingly reliant on the dollar since the enactment of the Bretton Woods Agreement, lost its formal connection to gold. The U.S. dollar, and by extension, the global financial system it effectively sustained, entered the era of fiat money.
        Did the Unions losing membership contribute to the loss of American jobs ? Probably, but not as much as NAFTA, which was signed by Bill Clinton. and granting Most Favored Nation status to China, which was given during the Clinton administration, and made permanent during the George W. Bush administration. Both were BIG MISTAKES !
        WHY has union membership declined ? In my opinion, they got too big and all-powerful, and forgot their original mission, much like the Feral (!) government. You can’t honestly blame either political party, without blaming the other one too.

        • 0 avatar
          dal20402

          Gold-pegged money is absurd. The supply of gold is entirely arbitrary and changes on factors that have nothing to do with the demand for money.

          So-called “fiat money” has brought the world the greatest financial stability it’s ever seen. Until its adoption (which really started with and even before Bretton Woods — the gold peg was not real after the 1933 Gold Reserve Act), there were regular financial panics driven by nothing more than vagaries of money supply. Those pretty much stopped, and the recessions and market slumps we’ve seen since–even 2008–are child’s play in comparison.

          Increased inequality, which is really the core complaint here, is due entirely to other policy failures. Trade policy may have been a contributor, but it could have been counteracted by better tax and labor policy. Instead we got something that wasn’t even laissez-faire capitalism, but active redistribution from wage-earners to asset owners.

      • 0 avatar
        DeadWeight

        4) Commodity Futures Modernization Act of 2000.

        One of the worst pieces of legislation in the United States during the last 100 years allowed for massive manipulation of commodity prices, massive manipulation of excessive growth of financial products (see Enron Loophole), and created a myriad of other severe problems imposed on the masses, to the benefit of the gambling houses of Wall Street-London-Zurich (too big to fail banks with trading desks), including increasing volatility and inflation in commodity markets.

        It is an idiotic, destructive, punitive piece of legislation, that benefits trading banks, and a few massive Ag companies, and nearly no one else, and pummels the average person.

        • 0 avatar
          DeadWeight

          p.s. – Healthcare sector has grown at nearly 8x (800%) the rate of U.S. GDP growth overall since the 1980s, with corollary costs to consumers (i.e. people) growing even more as a % on an inflation-adjusted basis, and during this time Americans have fallen further behind developed nation cohorts in primary areas of health-care (on relative basis) who spend far less per capita, including 1) infant mortality, 2) chronic disease, 3) mortality/longevity (since approx 2010, U.S. Life Expectancy has actually dropped in real terms.

          The health care industry (insurance, providers, pharma, etc.) has now been fully weaponized, and health care now comprises 22% of U.S. GDP, and will comprise 1/4 of U.S. GDP by 2030.

          It’s literally insane.

          • 0 avatar
            jkross22

            A family member recently had a health scare and went to the ER. Symptoms of stroke. MRI, CT, xray, bubble test, etc. She was kept overnight for observation. This person is in her 40’s.

            Total bill from the hospital was $54k. Bill from neurologist who was with her for roughly an hour was $3.6k. Bill from doctor who read the CT, MRI and Xray was $1k – this doc spent roughly 20-30 minutes reviewing test results.

            Don’t believe anyone who tells you healthcare cost isn’t out of control.

      • 0 avatar
        87 Morgan

        Dal..

        I agree with your point of eviscerated antitrust enforcement. I often muse about banking. It was not all that long ago, 20 years perhaps, that we had regional banks all over the country. These all had duplicated jobs of course, as you had the same people doing the same job regionally instead of nationally. Now that we are down to about 6 large banks all of those jobs are gone. We now have 6 CEO’s making stupid amounts of money vs. 70 CEO’s making a really nice living. With the ensuing management class following suit for each mid tier CEO. Interestingly, the mid tier management class income is/was about the same as it is today for the now 6 or so major banks. So, seems to me the only people who have seen real gains in income is the CEO class.

    • 0 avatar
      highdesertcat

      scarey, not everyone’s standard of living has been declining. Since President Trump moved in a lot of people are better off than they ever were in their lifetime.

      Me and mine are such people, as are many millions of others.

      Hey, some people who never worked a day in their lives, living on welfare, have now entered the workforce.

      That ain’t all bad.

      Sure, everybody thinks they’re underpaid but the truth is most people are overpaid for what they return in worth to their employer.

      The people worth their weight in gold are the ones who get paid what they’re worth, because they’re worth every cent, every perk, and every benefit because of what they return to their employer. Those are the keepers!

      • 0 avatar
        healthy skeptic

        @scarey

        I’ve been alive almost as long as the interval you mention, and from what I’ve both read and observed first-hand, every economic stratus is better off overall than it was then. The average American in 2018 enjoys a greater standard of living than in 1971, when we came off the gold standard. Material wealth, level of education attained, access to information, quality of health care, ability to travel, life expectancy, etc etc.

        One thing that has gotten worse is the relative disparity in wealth and income. Although all boats have risen with the tide, the higher boats have risen more.

        It’s also true the modern economy is more volatile than it was then. A lot of folks miss the stability and security of those earlier times. I see their point, but I also think there’s more opportunity and adventure to be had now. I don’t think I’d have been as happy back in the 35-years-and-a-gold-watch era. To each their own, though.

      • 0 avatar
        smartascii

        See, this is an argument I see a lot, and it leaves me scratching my head. Who, if not these “people [who] are overpaid for what they return in worth to their employer,” are buying the products and services that the employers sell? 42% of American households can’t afford a basic standard of living (defined as housing, food, child care, health care, transportation and a cell phone), so unless you’re Walmart, that leaves them out. That’s why setting this argument up as a liberal/union/whiners vs. entrepreneurs/job creators/American dream has always confused me. Squeezing the labor market to its lowest possible cost hurts everybody.

    • 0 avatar
      MrIcky

      …our standard of living has been declining for about 45 to 50 years …

      Thats crap. Average life expectancy is 7 years longer. The percentage of people who own a home is slightly higher than it was 50 years ago, but the size of the houses have nearly doubled (15% more own a house than 1950- the golden age). In 1960 57% of households only owned 1 car and 19% owned 2- only a small percentage owned 3 or more. Now almost 35% own 1 and almost 37% own 2 and 17% own 3 or more. In 1970 about 15% of the population had completed 4 years of college, now 33% have.

      Thats before you even get to things like dishwashers, tvs, etc.

      So we live longer, we’re better educated, we have more ‘stuff’… how does that equate to this woe is me standard of living BS

      • 0 avatar
        Lou_BC

        Wealth disparity is the issue not lower standard of living. You add a bunch of billionaires into the average and it makes it look better than it is. DeadWeight’s chart shows this disparity rather clearly.

    • 0 avatar
      bd2

      Uhh, you do know that the so-called “golden years”/Pax-Americana of the 1905s and early-mid 1960s that so many (white) Americans seem to yearn for (period when the American middle class was the largest/strongest) was when the top marginal tax rate was a whopping 91% and govt. spending was huge.

      There wasn’t just paying down the debt for WWII, but an immense transfer of wealth to grow the middle class/increase “human capital” via the GI Bill (which helped former servicemen to go to school, buy a home, etc.).

      And then there were major govt. infrastructure projects like the Interstate Highway System (started under Eisenhower).

      The American middle class started to see its decline accelerate w/ the adoption of “trickle down” economics and big US corporations getting their way w/ “free trade” with China, along w/ top management getting a much larger piece of the pie (in part for keeping wages down).

  • avatar
    George B

    Maybe the simplest explanation is that subprime car buyers are among the first to be affected by higher retail gasoline prices. Harder to make car loan payments when other expenses go up.

    https://www.gasbuddy.com/Charts

  • avatar
    ciscokidinsf

    I believe employment growth is still not delivering wage gains. At the same time, New cars have been getting more expensive every year, so definitely the technology gains are not making cars cheaper. They should, but the market seems to prefer more expensive vehicles. Also, for those who start ‘under’ in the trade in (they owe too much in the old car) most dealers use the available rebates to rollover under loans into new cars. So the debt continues to grow.

    Also, I wonder why the defaults are growing. You can basically do Lyft/Uber and on my neck of the woods, its almost like if the car is new, it is a 90% chance is an uber/lyft. I feel new car paperwork includes your Uber stickers.

    But certainly is a scary prospect with a ‘good’ job market + ability to do rideshare, and still people are defaulting in large numbers. Something is not right….

    • 0 avatar
      TMA1

      Cars might be cheaper if the government didn’t keep moving the goalposts. So companies have to keep investing in new technology that no one asked for to meet CAFE 2025. Why go with a tried and true V6, when you can have a blown 1.0 liter hamster wheel instead? You’ll get mandatory back-up cameras for all 2019 models. Progress! The progress of dollars out of your wallet…

    • 0 avatar
      bd2

      Can get a new subcompact for LESS nowadays counting inflation.

      And with leasing having become more predominant, can find plenty of 2-3 yr old used autos.

      The problem more so has been wages for the working class.

  • avatar
    TMA1

    Lots of interesting analysis in this thread.

    So I’ll just leave this possibility here. More defaults = tighter lending restrictions = fewer Nissans on the road. Ever cloud has a silver lining!

  • avatar
    hreardon

    I’m pleasantly surprised at how civil this discussion has been – politically charged topics tend to go off the rails fast around here, so I’m glad to see it!

    If you do a little digging, the default rate at the end of Q4 2017 was about 2.4% of all auto loans. Student loan defaults were almost triple that: 9.6% (plus minus a few tenths, IIRC). Taking the risk pool as a whole: that’s pretty darn low. More to the point, I think they’re referencing *delinquencies*, not so much defaults. Big difference there.

    Cars can be repossessed relatively easily and buyers have demonstrated time and again that they will pay their car loan before their mortgage. The risk of loss to the lenders is a lot lower than compared to the mortgage market.

    So, while this is a valid data point, I would caution that it doesn’t mean the sky is falling.

    Big picture, though, I see a few major concerns when talking about American economics:

    1. Overall, we are poorly educated in basic finance. More people could avoid many of the financial traps out there with a bit more education;

    2. Agree with the earlier statements about how the lower versus upper classes teach their children about money: I distinctly recall a lesson when I was about 6 years old visiting some relatives:

    “Mom, my cousins all have ATVs, a swimming pool, and a big (well, 19″ at the time) television!”
    “Son, that’s because *you* are going to go to college.”

    Delayed gratification is an essential lesson to teach our youth.

    3. The markets de-leveraged on risky mortgages, but they bulked up on absolute junk investments over the last 10 years.

    4. Leverage: cheap interest means cheap money, means riskier bets get made. This will come back to bite a lot of people on the you-know-what

    5. Oil prices: Funny that Ford ditches sedans just as oil spikes. Temporary increase? Perhaps, but prolonged $90-$100 oil will be a huge tax on the economy. I suspect a spike will be temporary as a LOT of oil fields were idled over the past few years when prices crashed. Those fields will become profitable again and supply will improve.

    6. Tariffs: who knows how this will play out. It’s a major fudge factor in everything. The only upside is that Trump is a pragmatist who will change course if he sees his moves failing.

    7. Business cycle: we’ve had a long, hyper-accelerated expansion fueled by stupid low interest rates. Based on the employment market right now, I suspect we’re just about at the top.

    I agree that we’re likely not headed for another 2008 style collapse, but we’re due for an economic housecleaning very soon.

  • avatar
    dusterdude

    Lots of interesting comments.. I’m not sure if anyone has an economics degree that is commenting ? I don’t, but I’ll give you my opinion !… Defaults are mostly not due to poor job market , but creeping inflation.

    Most commodity pricing are currently rising, the main reason is due to
    predatory pricing, but also due to some increases in demand …many other factors to consider also like corporate bond defaults and rising rates.

    The increasing global GDP will continue to raise prices — recently noted that ” forecasts for 2018 and 2019 have been revised upward by to 3.9 percent, reflecting increased global growth momentum and the expected impact of the US Tax changes implemented”

    Long story short, get ready to pay more for everything !! At some point it will hurt too many people, and we will be staring at a recession. When that will be is the big question – maybe in a year or two ? Time will tell!

    • 0 avatar
      scarey

      Inflation is no longer the big mystery that it once was. It is the deliberate devaluing of money and can only be done big time when fiat money is used. What is FIAT money ? It is money that has no inherent value. It is not backed up by gold, silver, or ANY other valuable commodity that it can be traded for at any time. All money is only an IOU- only as good as the person or entity that issued it and only as good as their promises. The Federal (it is NOT) RESERVE BANK has devalued the dollar by 97% since 1913 when it was formed. ALL paper instruments denominated in dollars, pounds, francs, rubles, yen, yuan, etc. are merely IOUs. See:All about Fiat Money @ https://christianstatesofamerica.net/f/all-about-fiat-money for more information.

  • avatar
    manu06

    The decline in the standard off living has been masked by cheap credit, two worker households,
    and technology advances. The average worker has been screwed but their not smart enough
    to know it.

    • 0 avatar

      Thank you. When I left high school, I had two paths…I could go to college or get a job in a local factory. At that time, there were local factories, which had jobs, which paid benefits as well. Fortunately, I chose path a, but in 1979, just before Reagan and the destruction of local jobs, path b still existed.

      Back then, debt was for a mortgage, you bought and paid off a car in 2-3 years, owning it, and the bank used to give kids a field trip complete with a “kid’s saving book” and they’d happily take your quarters for savings….

      Then, PooF !! Mom went to work, tuitions got huge, and health costs became a mortgage payment with no end….someone’s getting rich, it just isn’t you.

      I get all the MAGA folks, even if their supposed savior turned out to be a grifting charlatan deconstructing what little protection is left for the average man….that USA used to exist, and in memory of many still active people.

      Keep voting against yourselves !

      • 0 avatar
        DeadWeight

        Government backing of bank/financial college loan-letting to anyone with a pulse is what has directly led to bloated universities, colleges and technical and for-profit institutions, with bloated salaries for professors, administrators, college provosts and presidents, skyrocketing tuition (outpacing general inflation by about 7x), etc.

        If the government didn’t guarantee student loans, tuition would be 20% of what it is at most colleges/universities, and the scam for-profit sector either would be 10x smaller, or non-existent.

        • 0 avatar
          jkross22

          Gov’t backed student loans existed for decades prior to the run up in tuition costs. I went to college in the late 80’s and 90’s using gov’t backed loans. My in-state tuition was 1k/semester.

          Assuming normal inflation, that would make that school’s tuition roughly $2500/semester. It’s $10k/semester.

        • 0 avatar
          Big Al from Oz

          DW,
          Australia I think has a fair system for tertiary education. It’s called HECS.

          Basically, the Commonwealth Government offers the loan for the education. The education is subsidised, as is the loan.

          When the student finishes their tertiary education and earn above a certain threshold the government adds a tax to the students income tax to pay down the interest free loan (the loan on rises with the CPI).

          You only get one bite at the cherry with this as well. So, a student must choose what they want as a career. This removes any chances of “professional students” abusing the system and living on welfare for their lives.

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

  • avatar
    87 Morgan

    I reviewed the Bloomberg article. What we don’t see or get is a clear definition of what a subprime auto loan is.

    In 1996 car loans were pretty straightforward. 60 months was the max term. Good credit was 6% or so.

    Is an 84 month car loan written at a rate of 7% at 130% of MSRP considered a subprime loan? It is to me. I would think this type of loan gets sold on the ABS market.

    My point. It makes sense that defaults are increasing due to increase in the number of financial products that allow a customer to purchase a car that were not available in 1996. Extended term loans really didn’t start to take hold until 2002 and even then they were used sparingly. 84 month car loans are fairly ubiquitous in todays market along with minimum down payment loans with high loan to value ratios. I believe the increase in defaults is another system of the income disparity that exists. Income has not kept pace with the increase in cost of cars, housing, health care etal.
    The other really fun aspect I have been seeing is the number of loans that are available on high mileage used units. You can, with mediocre credit, get a loan for 5 years on a 9 year old truck with 100k on the odo. The fact loans like this are going bad at higher rates is not really surprising. It is not like, even if it is a Toyota, people are that shocked to hear of a bad transmission on a 165k rig. If you live on the bubble, replacing a transmission at a cost of 2-5k in a truck that is worth 6-9k is a real problem and in a lot of cases the rig ends up back at the bank to be sold at auction for pennies on the dollar.

    You can use my own Suburban as an example. Good condition 2008 with 115k on the odo. It would sell retail for 16k +-. You could easily get a five year loan on it, even with bad credit. I plan to keep it for another 5 years or more and will be pleasantly surprised if I DON’T have to replace the 4L60E in the next five years.

    • 0 avatar
      jkross22

      “I plan to keep it for another 5 years or more and will be pleasantly surprised if I DON’T have to replace the 4L60E in the next five years.”

      Dollar cost averaging replacing that transmission with a rebuilt one will run, what, $40/month if you keep the car for 4 years.

      A new suburban would cost 15x that on the low end.

    • 0 avatar
      Scoutdude

      The big thing behind this is that the sub-prime lenders are now playing in the deep sub-prime waters. So this really isn’t anything to worry about. Their desire to write more loans will be balanced with the higher default rates and interest rates they charge on those deep sub-prime loans. I think since they are probably getting 19.99%, 24.99% or the highest they can legally charge in the state the buyer lives in that they are doing OK with this default rate.

  • avatar
    CapVandal

    Whats the problem? Anyone think banks or manufacturer captives are losing money?

    Non prime lenders made huge profits from 2009 to 2014 or 15,by which time a lot of profits were competed away. It’s a credit cycle. Period.

    The borrowers mostly paid them. Auto Loan Static Index (ALSI)–Vintage Analysis on page 6 for subprime look fairly normal. Plus more borrowers got prime loans — with weaker underwriting increasing defaults for both groups. https://www.spratings.com/documents/20184/908542/US_SF_Webcast_Auto_2.pdf/dc4ffd9a-d775-4d03-8801-7d175f6557ef

    If you have a job, you have a car. Thats what America is all about.

  • avatar
    CincyDavid

    https://seekingalpha.com/article/4174775-santander-consumer-usa-doubling-worsening-subprime

    How would you like to be Santander?!?…their largest customer is FCA.

  • avatar
    CapVandal

    Santander Consumer USA Holdings Inc., a specialized consumer finance company, provides vehicle finance and third-party servicing in the United States. Its products and services include retail installment contracts and vehicle leases, as well as dealer loans for inventory, construction, real estate, working capital, and revolving lines of credit. The company also offers financial products and services related to motorcycles, recreational vehicles, and marine vehicles; originates vehicle loans through a Web-based direct lending program; purchases vehicle retail installment contracts from other lenders; and services automobile, and recreational and marine vehicle portfolios for other lenders. In addition, it provides private-label credit cards and other consumer finance products, as well as point-of-sale financing. The company was founded in 1995 and is headquartered in Dallas, Texas. Santander Consumer USA Holdings Inc. is a subsidiary of Santander Holdings USA, Inc.

    The premise of the article is that something wrong. But SC is profitable. So much for that.


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