#Sub-prime

Credit-reporting agency Equifax says that as of June 2015 more than $1 trillion has been loaned or leased in the United States. The total dollar amount is 10.5 percent higher than last year.

The average loan amount is $20,800, which is a 3.65 percent increase over last year, and the average sub-prime loan is $18,200. Sub-prime loans comprised 23.5 percent of newly originated auto loans.

More than 9 million new loans were made up to April 2015, which is a 5.8-percent increase over last year. Overall, more than 73.7 million cars are financed through loans in the U.S.

The Office of the Comptroller of the Currency, a government entity that regulates and supervises banks, is sounding the alarm regarding risks related to auto loans.

New technology is allowing buyers with no credit score – due to a lack of credit history or a personal bankruptcy – to get vehicle financing via examination of documents like the payment history of their cable or cell phone bill.

6:30 P.M. and three more cars just pulled up to my place… on a Monday…

Have I just bought a McDonald’s franchise? Not quite. This is the start of what we call “tax season” in the used car business.

A time when tens of millions of Americans who live paycheck to paycheck get a nice four figure lump sum from Uncle Sam and his favorite sub-prime debt dealers.

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.

The Detroit Free Press paints a pretty clear picture of the automotive lending landscape: auto loan terms are rising, with 1 in 5 loans now lasting longer than 6 years. At the same time, the average credit score for those taking out loans is dropping. Ominous signs for a car market that’s running on the hype of a perpetually increasing SAAR, right? Well, not according to some.

Seeing delinquencies and credit losses going up while used car sales and lending standards deteriorate, rating agency Fitch warned today that “U.S. auto lenders will likely report further weakening in asset quality metrics this year.” Translated into English, lenders will become increasingly dependent on sub-prime loans and exposed to their perils.

The volume of car loans is near pre-carmageddon levels, but a federal probe of business practices threatens to “slow the booming car-loan industry,” the Wall Street Journal writes.

According to the report, the Consumer Financial Protection Bureau (CFPB) has issued subpoenas to U.S. auto lenders over the sale of extended warranties and other financial products.Meanwhile, the Justice Department is looking into auto dealerships that make their own loans to customers with poor credit and charge higher rates.

Ratings agencies and other players in the finance world are beginning to sound the alarm on auto backed securities. Among the most troubling factors for some investors is the growth of smaller issuers who rely on pools of deep subprime loans. And ratings agencies who are being more conservative with their ratings are missing out on the action.

Sub-prime finance has attracted a bit of interest (no pun intended) over at TTAC lately, and the segment itself has experienced phenomenal growth in the post-bailout era.

Auto lending site www.carfinance.com released a list of the top 10 most popular new and used vehicles as purchased by sub-prime buyers over the last six months. While it’s not the most complete list by any means, it does give us a glimpse into the choices of sub-prime buyers. As far as we know, no such list has ever been compiled prior to this.

8 years to pay off a car? A report by the Wall Street Journal claims that in Q4 of 2012, the average car loan stretched out to 65 months, or just over 5 years. Loan terms were being stretched out over increasingly longer terms too, with credit firm Experian reporting that nearly 1 in 5 car loans had terms between 73 and 84 months long, with some stretching for as long as 97 months.

March was the 5th straight month of a SAAR above 15 million vehicles. Industry analysts have explained the strength of the market in a number of ways. The need to replace older vehicles is one (new car sales were hit hard during the recession as consumers held on to their vehicles for longer. This also caused used car prices to skyrocket, something TTAC has been documenting), while others have cited increasing fleet demand, and the desire to replace vehicles damaged in Hurricane Sandy.

But one factor that is just starting to get attention outside of TTAC is sub-prime financing. Sub-prime lending, which involves giving high-interest loans to customers with poor credit scores, is driving the SAAR in a big way, by letting buyers with poor credit purchase new cars. In turn, the sub-prime bubble is being driven by Wall Street, whose clients cannot get enough of financial instruments backed by sub-prime auto loans.

Upon receipt of a multi-billion dollar loan from the Canadian government, General Motors signed a “Vitality Commitment”, essentially a covenant in the loan agreement between GM and Canada’s government, which guaranteed that a certain amount of GM’s North American production would remain in Canada. That number is widely reported as being 16 percent, while page F-69 of GM’s IPO filings outlines that the covenant is valid until GM repays its loan commitments or until December 31, 2016, whichever comes later.

While Oshawa has widely regarded as one of GM’s best plants in terms of producing high-quality vehicles, the future of GM’s Oshawa plant is looking increasingly bleak.

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.

When you have 120 dealers looking at the same exact car on a Monday morning, you have three options if you plan on buying a car.

1) Bid

2) Watch

3) Leave

After I saw a 2003 Infiniti FX35 with 220,558 miles sell for $9100 plus the auction fee, I left for good.