It would appear that the exuberance over today's better-than-expected car sales data should be tempered significantly. Confirming our warnings, as the Office of the Comptroller of the Currency (OCC) explains, across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. With average loan-to-value rates above 100%, they have an ominous warning: "risk in auto-lending is beginning to emerge." We are sure this will be dismissed (just as the BIS' warning has been), but with surging charge-offs and increased repackaging (CLOs), and banks holding a lot of this debt, this 'bubble-financing' has all the ingredients for subprime 2.0 contagion.
Auto-loans are surging... Subprime auto-loans were up 10-fold in 2013...
As OCC reports,
Auto lending remained a highly competitive product segment, as strong growth continued through the end of 2013.
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The banks have been doing this since the bailout of 2008.
ReplyDeleteGM has been doing this since the bankruptcy was over. GMAC was part of GM before the bankruptcy and those same practices were used before.
ReplyDeleteThe key to GMs recent sales numbers is that they will finance anyone to buy their junk