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Subprime Spikes Auto Sales, Delinquencies Soar, Industry in Total Denial, Fallout to Hit Main Street

January 10, 2015

Subprime Spikes Auto Sales, Delinquencies Soar, Industry in Total Denial, Fallout to Hit Main Street

New vehicle sales in the US have been on a tear in 2014, rising 5.6% to 16.5 million units, the highest since banner year 2006. Light-truck sales jumped 10%, cars edged up 1.8%. The industry is drunk with its own enthusiasm.

General Motors CEO Mary Barra sees “still plenty of room for the auto industry to grow.” She rattled off politically correct reasons: consumers who’re “feeling pretty good about the future,” due to “the strength of the labor market, better job security and the recovery in home prices,” topped off by the “sharp drop in fuel prices and rising incomes,” possibly confusing their stagnant or declining incomes with her rising income.

So sales could hit 17 million in 2015, she said in the statement. It would take the industry back to the car-glory days of 2001. It’s going to be younger buyers – the Holy Grail of everyone. They’re not just moving out of their parents’ homes, where they’ve been holed up for years because they can’t afford the soaring rents or home prices, but now they’re also going to splurge on a set of wheels. Because it’s a great time to buy.

Interest rates for six-year new-car loans are as low as 2.75%, according to Bankrate.com. Loan terms can be stretched to seven years, to where these younger buyers will be awfully close to middle-age before they finally get out from under it. Loan-to-Value ratios have soared well past 100%; everything can be plowed into the loan: title, taxes, license fees, cash-back, and the amount buyers are upside-down in their trade. The package is governed by loosey-goosey lending standards. Bad credit, no problem.

And that’s exactly the problem.

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