[Puffer Fish]

http://www.mybudget360.com/auto-debt-su ... financing/

This is kind of funny, in a tragic sort of way.

Many Americans cannot afford their homes. After the subprime mortgage crisis, banks began tightening credit and getting more strict about who they would lend to. Now, it seems, these same Americans are turning to auto loans.
I imagine we'll see the same thing happen with auto loan financing that we saw happen with subprime mortgages in 2007.


Zero Hedge had some articles on it:

Subprime Auto Loans are Defaulting at Fastest Rate Since 2008 - article October 2019
https://www.zerohedge.com/personal-fina ... -rate-2008

Subprime Auto Loans Explode, "Serious Delinquencies" Spike to Record - article February 2020
https://www.zerohedge.com/personal-fina ... ike-record

Auto dealers could suffer some serious hurt if the loan financing companies they are expecting receivables from go bankrupt.
More than 85 percent of new car sales are bought on credit.

Middle-class families getting priced out of new American cars -CBS News


Subprime auto defaults on path toward 2008 crisis levels, say portfolio managers

The surge in easy credit during the coronavirus pandemic, government stimulus payments, and skyrocketing car prices have all begun to bite borrowers with the lowest credit scores.

Subprime borrowers who financed used cars at record high prices in recent years have been acting more stressed than during the 2008 global financial crisis, even though the labor market has been resilient, according to a report from fixed-income asset manager Bramshill Investments.
While inflation and higher interest rates have been eroding paychecks of all U.S. consumers, "it is very apparent to us that it is negatively affecting subprime borrowers [who tend to have lower credit scores and lower incomes] more harshly than others," managers Paul Van Lingen and Ara Balabanian wrote, in a client note. "[C]ontinuing the current path, we are assuming defaults and recoveries will continue to deteriorate more toward levels not seen since the [Great Financial Crisis in 2007]."

60-plus day delinquencies hit 9% in March (2023) for borrowers with credit scores of 550 and below. That's up from a rate of about 7% in March 2019 before the coronavirus pandemic crisis.

These subprime auto loans are packaged into asset-backed securities, or bond deals.

Subprime auto defaults on path toward 2008 crisis levels, say portfolio managers - MarketWatch, Joy Wiltermuth, May 6, 2023
https://www.marketwatch.com/story/subpr ... s-e8245840

[late]

Zero Hedge is 2ndrate trash.

They are trying to link 2008 to today, and blame it on Dems. That is a classic move crooks make. Trump killed the regs that would have required SVB to be stress tested, and if it had been tested, we would have learned about it's weakness BEFORE it became a crisis.

[Puffer Fish]

Trump killed the regs that would have required SVB to be stress tested, and if it had been tested, we would have learned about it's weakness BEFORE it became a crisis.

We can talk about the role unsustainably low interest rates played in leading to these subprime crises.
Rates that are too low encourage excessive borrowing. And since those rates cannot be held down low forever, when they do eventually rise it can cause problems, because people were not expecting or prepared for it, and changes in interest rates lead to wider reverberations in the economy.

In short, artificially low interest rates are like stimulus, and stimulus is not inherently sustainable over the long run.
Similar to drinking coffee and caffeine-laden drinks when you are very tired. That's not a way to put off having to sleep forever, and it's an inevitability there will come a point where you will crash.

When it comes to consumer borrowing, people are living now based off the future. Imagine taking a time machine into the future to steal money from your future self to buy something for yourself today.

[MistyTiger]

People are horrible at managing their money and balancing their checkbook. They like to spend more than what they earn. This is how people get into debt.

The loan is not a new concept and can be traced far back in history to the early years of civilization. https://en.wikipedia.org/wiki/History_o ... %20lending.

If more people were aware of the dangers of loans and taking out too much money, then a crisis like this could be avoided. Everyone wants to blame the interest rate or the banks. Who should be blamed? The person who took out the loan in the first place. That person should really stop and think about what they are doing. When you sign that contract, you are bound by it and you must pay back the principal and interest. The debt collectors will call you and call you if you are running behind on payments.

People want a new car after every 5 years, for example. Who wants an old car? But if you're constantly buying a new car or leasing a new car, you are paying out more money than the person who drives the same car for over 20 years. Is it worth it to always have a new car? Rampant consumerism and the desire for new goods is the culprit for a lot of consumer debt.

[AFAIK]

John Oliver discussed this 7 years ago...

[Puffer Fish]

If more people were aware of the dangers of loans and taking out too much money, then a crisis like this could be avoided. Everyone wants to blame the interest rate or the banks. Who should be blamed? The person who took out the loan in the first place. That person should really stop and think about what they are doing.

It's very much human nature, for many people, I'm afraid.

Should government implement some policies to try to put the breaks on this and curtail excessive debt from building up?
Some people could argue that.
The government of China implemented some official policies like that.

[Puffer Fish]

Debt can often be caused by poor individual decision-making and irresponsibility.

But some part of it can also be caused by pressures in society. Economic pressures pushing people to take on debt because that's the only way they can pay for things.

Now of course the situation in the U.S. is nothing like impoverished Third World countries where people literally have to get into debt or starve, but a little bit of that sort of analogy can be made.

Rising debt levels can (in some cases) be a symptom or an indicator that there are economic problems.

Usually changes in consumer spending habits lag behind changes in income in the economy. People want to continue living a certain lifestyle (and I'm not necessarily even blaming them for that) but to do so they have to take on debts to make up the difference. This of course is not sustainable, in is only a short term solution. Eventually things will come crashing down and they will be forced to deal with the reality. But human nature is to hope that their personal circumstances will somehow improve.

For many lower income people in the U.S., if they did not take on debt they would not have cars. (It can be difficult to live or get around in most parts of the U.S. without a car)