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Tuesday, February 21, 2017

Auto Bubble Burst Begins As Subprime Delinquencies Soar To 2009 Levels

For months we've argued that record auto sales have been propped up by low interest rates, a perpetual loosening of auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments.

That said, with rates recently on the rise and a flood of lease returns driving down used cars prices (see "Record High Lease Returns Set To Wreak Havoc On Used Car Prices"), the tailwinds that have propelling auto sales to record highs over the past several months look set to change course.

Certainly, a quick look at the 61+ day delinquencies in General Motors' subprime securitization book would seem support our rather negative thesis on future auto sales with January 2017 delinquency rates soaring to the highest levels since late 2009 / early 2010.



Anonymous said...

I just traded in my 2005 Honda Pilot on a Certified (former lease) preowned Honda Accord. Fully equipped with only 10K on the odometer. Brand new it's around 30K. We got it for 21K. I still think this is very high, but the trade in and longevity of an accord make it well worth the purchase. The Pilot had almost 200K on the Odometer. Still looked and ran great but was needed some transmission work. Very reliable!

Anonymous said...

I just watched the "Big Short". Very similar situation.
I highly recommend watching it this week.

Anonymous said...

Check out the Auto yard on Naylor Mill Road. It's the overflow yard for Pohanka. Dealerships are forced to accept inventories they cannot fit on their lot. Says a lot about the economy. Many unsold cars and no where to put them. New car prices are out of reach for the typical buyer. They have to finance now for 6 years or more. Longer commitment and higher payments. Not good. Incomes have not kept up with the prices. I have great credit, but I cannot see myself paying these prices or having a long commitment in a car loan in an uncertain economy.

Anonymous said...

1052 nicely done. Days of buying NEW NEW where out the window years ago. ON the flip side, we still need those who HAVE to buy NEW NEW to do so!!!!

Anonymous said...

I almost bought a Cadillac Escalade last year... until I saw the $90,000 sticker price.
Somebody usually buys me dinner first before asking me to do that!
The most expensive fragrance in the world is that new car smell.

Anonymous said...

That lot on Naylor Mill belonged to Warren Price of Price Buick GMC before he passed. Then the little surfer boy weasel of a CEO trashed the whole company, so Hertrich maybe owns it now.