AUTO LENDING STANDARDS PLUNGE: NEW CAR LOANS AVERAGE 110% LTV; USED CAR LOANS 133% LTV WITH 55% SUBPRIME! REPOSSESSIONS UP SHARPLY

Auto Lending Standards Plunge: New Car Loans Average 110% LTV; Used Car Loans 133% LTV with 55% Subprime! Repossessions Up Sharply

U.S. car sales are up. It’s easy to explain why: car buyers borrow more as standards loosen

 The average loan on a new car climbed to $26,719 in the third quarter, up by $756 from a year earlier, and the most in at least five years, according to data collected by Experian Plc.

Despite borrowing so much more, average monthly payments on new car loans rose only $6 to $458. That is because banks and finance companies were willing to lend at lower rates and grant borrowers more time to repay.

Lenders made 26.04 percent of their loans on new cars to buyers with subprime credit scores, up from 24.84 percent a year earlier, said Experian, which collects car title and financing information to compile its reports. For loans on used cars, the portion to subprime borrowers rose to 54.95 percent from 54.43 percent.

As the lenders made bigger loans, they also extended credit further beyond the value of the vehicles. The average loan-to-value on new cars rose to 110.6 percent, up by 1.17 percentage points. On used cars it rose to 133.2 percent, up by 2.18 percentage points.

Auto lenders often provide loans that exceed the value of cars they are financing because borrowers want cash to pay sales taxes and fees.

Extra-long loans are becoming more common. Some 19 percent of new car loans were made for more than six years, up from 16.4 percent a year earlier.

The percentage of loans 30-days delinquent was down in the third quarter to 2.58 percent from 2.67 percent a year earlier, Experian said.

However, the average loss on loans gone bad jumped to $7,770 in the third quarter from $7,026 a year earlier and repossessions increased sharply, particularly for subprime borrowers.

Used Car Loans 133% LTV with 55% Subprime?!

Excuse me for asking, but didn’t we try “lower-and-lower lending standards” once before? How did it work out? Can anyone tell me why it will be different this time?

Repossessions are up sharply, but who cares about that? No doubt the loans are sliced, diced, tranched, and securitized to make them appear as AAA. Pension funds are probably dumping gold to load up on them.

Auto lending, like housing in 2006, appears to be a no-lose proposition.

After all, the Fed is in complete control. Isn’t it?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Read more at http://globaleconomicanalysis.blogspot.com/2013/12/auto-lending-standards-plunge-new-car.html#TvJLTqptV22QdqzA.99

AUTO THERAPY Americans are bingeing less on houses and more on cars

AUTO THERAPY

Americans are bingeing less on houses and more on cars

By John McDuling @jmcduling 7 hours ago

Easy street. Reuters/Rebecca Cook

November sales figures for Detroit’s “big three” automakers are out, and like last month, they’re looking good:

It’s a good sign for the US economy, given that automakers are both a huge employer and a major customer for other industries. It’s also further vindication for the Obama Administration’s 2009 bailout of the sector.

But as we’ve previously discussed, there’s good reason to be at least slightly concerned: The boom in auto sales coincides with a massive increase in cheap auto loans, many of which are subprime. These loans are packaged together and sold on to increasingly yield-hungry investors. Issuance of securities backed by subprime auto loans have more than doubled since 2010 to $17 billion this year, but remain below their 2005 peak, Businessweek reports, citing Deutsche Bank.

What’s more, a recent survey of auto dealers by UBS found that lending standards for financing auto purchases have been easing since mid-year. The chart below shows the percentage of auto dealers who think lending standards are getting tighter versus more lenient:

​UBS

Neither Wall Street or Main Street seems all that concerned. UBS is forecasting arecord year for GM in 2014, with its North American profit to increase by some $2 billion, up 27% from this year. Auto dealers, according to the UBS survey, expect industrywide car sales to increase by 2.6% in 2014.

Of course, surging auto debt comes at a time when falling credit card debt has been falling sharply. Slate’s Matt Yglesias has argued that credit card lending standards have tightened far more than auto lending standards have since the financial crisis. He puts this down to the greater strength of the car lobby relative to the banking lobby. The UBS survey supports this notion. Most dealers say warnings from the Consumer Financial Protection Bureau have had no impact on lending practices this year, as shown in the chart below.

​UBS

The pressing question these numbers raise is whether consumers are shifting their spending and debts from credit cards to auto loans. The New York Fed’s latesthousehold debt and credit report shows that while housing debt has fallen since 2008, non-housing debt, which includes credit cards and car loans, is actually back at pre-crisis highs.  If consumers are piling up on auto loans, the economy may have moved on to its next bubble.

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