16% of Dec car sales subprime loans, 30% leases

[Joe1]

I was reading an article that summarized December automotive sales and was surprised to learn that nearly 1 in 6 automobile sales in December were financed to consumers with "subpar" credit. Moreover, the article stated that leasing accounted for a record 30% of sales transactions.

I do not understand why so many with "subpar" credit are engaging in transactions that are inimical to their financial well-being.

http://www.latimes.com/business/autos/la-fi-hy-december-auto-sales-20140102,0,2428358.story#ixzz2pLuLv43g


Quote from last paragraph:

"Lending to consumers with subpar credit is already closing in on 16%, the peak prior to the recession. Moreover, leasing now is at a record 30% of car sales. Incentives and discounts are starting to rise and automakers are adding production capacity to their factories at a rate that is faster than consumer demand."

 

[SwampSurvivor]

Billy Fucillo (large auto dealer) finances Nissans to anyone for $150 a month. I'm not surprised. Why would someone save up $5000 and own a used car or finance a new car when they can have a brand new car for only $150 a month without anything down.

In the poorer neighborhoods of the city, the streets are filled with newer, leased nissans.

Plus, with everyone pushing harder than ever on the "keep up with the jones" philosophy - people are going to go into debt for anything on which they can be financed.

 

[demarpaint]

The dealerships love the sub-prime financing, they get some nice $$ kicked back from the banks on the loan. When I sold cars many times we made more money on the kickback from the loan than we did from the sale of the car. A good/dishonest Financial Manager typically packs a sub-prime deal with an extended warranty, vin etch, and anything else he can possibly sell. They try and borrow more money than they actually need. Then pack the deal with extras and tell the sub-prime customer w/o those extras the bank won't lend them the money. This is how the crooks work. There are a handful of honest F&I managers, try and find one though.

 

[dparm]

This is ridiculous, along with the data about how long you can get auto loans for. 72-96 months? Even at 4% you will pay a ridiculous amount of interest. Might as well just buy the car twice.

 

[Boomer]

A number of financial sites are now advocating shorting GM stock as they seem to be more exposed to this sub-prime lending and may be on the cusp of a bubble bursting. They are lloking for the price to fall significantly as this bites in.

 

[IndyIan]

Originally Posted By: Miller88
Billy Fucillo (large auto dealer) finances Nissans to anyone for $150 a month. I'm not surprised. Why would someone save up $5000 and own a used car or finance a new car when they can have a brand new car for only $150 a month without anything down.

In the poorer neighborhoods of the city, the streets are filled with newer, leased nissans.


How can that work? I guess an 5 or more year lease on a $12k car sort of balances the numbers. Hmmm, that's not a terrible way to go actually. $1800/year for a car never older than 5 years old...

 

[SwampSurvivor]

Originally Posted By: IndyIan
Originally Posted By: Miller88
Billy Fucillo (large auto dealer) finances Nissans to anyone for $150 a month. I'm not surprised. Why would someone save up $5000 and own a used car or finance a new car when they can have a brand new car for only $150 a month without anything down.

In the poorer neighborhoods of the city, the streets are filled with newer, leased nissans.


How can that work? I guess an 5 or more year lease on a $12k car sort of balances the numbers. Hmmm, that's not a terrible way to go actually. $1800/year for a car never older than 5 years old...


Your guess is as good as mine. They are on TV all day advertising Versas, Sentras, Altimas for under $200 a month



Originally Posted By: dparm
This is ridiculous, along with the data about how long you can get auto loans for. 72-96 months? Even at 4% you will pay a ridiculous amount of interest. Might as well just buy the car twice.


But I *deserve* this new car! I'll just finance it out 8 years so the peyment is nice and low. Don't want to spend too much money

 

[MCompact]

My father and his law partner founded a savings and loan back in the 1960s. They averaged less than one foreclosure per year(and less than a dozen repos). Before long the Feds forced them to adhere to "lending standards"- at which point foreclosures and repos became a frequent occurrence...

 

[99Saturn]

Originally Posted By: dparm
This is ridiculous, along with the data about how long you can get auto loans for. 72-96 months? Even at 4% you will pay a ridiculous amount of interest. Might as well just buy the car twice.


Not quite the same as buying the car twice.... $30,000 loan at 4% for 8 years is ~$35K worth of payments.

 

[opus1]

Couple this with the "new FHA Requirements Make Qualifying [for a home loan] easy!" ads I keep hearing on the radio and we're all set for another "crash".

And I'll stop here, lest I touch that political third-rail...

 

[friendly_jacek]

Yap, economy is flooded with funny money thanks to Fed, rampant speculation everywhere (but gold). Guess what's coming next.

 

[SwampSurvivor]

Originally Posted By: opus1
Couple this with the "new FHA Requirements Make Qualifying [for a home loan] easy!" ads I keep hearing on the radio and we're all set for another "crash".

And I'll stop here, lest I touch that political third-rail...

That's the plan.

 

[rjundi]

Now you get why dealers don't care about low offers from people on their cars. They wait till they get subprime and start raking in money.

A cash buyer brings little to the table.......Never mention cash when making an offer. Just be vague otherwise you will get shut down fast.

 

[whip]

People with poor credit buying cars doesn't surprises me. What does surprises me is that the lending institutions have not learned their lesson after 2008. They keep making money easy to get and the people will keep taking it. Eventually, a lot of those people will default in mass, and we'll repeat the process. The same thing is happening in the housing market.
It's funny how the banks never took any responsibility for the crash, but willing took the bailout money, similar to the way GM took money. Yet, nobody seems upset with their bank like they were with GM.

 

[metalboy]

Originally Posted By: whip
People with poor credit buying cars doesn't surprises me. What does surprises me is that the lending institutions have not learned their lesson after 2008. They keep making money easy to get and the people will keep taking it. Eventually, a lot of those people will default in mass, and we'll repeat the process. The same thing is happening in the housing market.
It's funny how the banks never took any responsibility for the crash, but willing took the bailout money, similar to the way GM took money. Yet, nobody seems upset with their bank like they were with GM.


Honestly, 16% of sales to "imperfect credit" doesn't really strike me as that high. Means that 5 out of 6 finance deals are done to people with excellent credit.

If a bank wants to lend to people with credit blemishes, that should be their business. There's good money in it, and lots of people have credit problems through no fault of their own. Cars are probably a better "chance at credit rehabilitation" than most things: they hold quite a bit of their value for a while and the amounts are not outrageously large. Lots of those "sub-prime" notes are getting written for $20K cars that can always be repo'd if necessary.

 

[KrisZ]

Originally Posted By: whip
People with poor credit buying cars doesn't surprises me. What does surprises me is that the lending institutions have not learned their lesson after 2008. They keep making money easy to get and the people will keep taking it. Eventually, a lot of those people will default in mass, and we'll repeat the process. The same thing is happening in the housing market.
It's funny how the banks never took any responsibility for the crash, but willing took the bailout money, similar to the way GM took money. Yet, nobody seems upset with their bank like they were with GM.


Once you realize that 2008 was done to prop up the big banks and get rid of the small banks, you will not find the practice surprising at all. Plus those banks never lost any money, to the contrary actually.

 

[addyguy]

I'm sorry, but I don't have a problem with super-long car loans.

Cars are f'ing expensive, and the only way most people these days can afford to have one is the spread the payments out...you would never fault someone for signing on to a 25-year mortgage, b\c that's the only way to be able to afford to own a home!

Cars are the same way now!

 

[KrisZ]

Originally Posted By: addyguy
I'm sorry, but I don't have a problem with super-long car loans.

Cars are f'ing expensive, and the only way most people these days can afford to have one is the spread the payments out...you would never fault someone for signing on to a 25-year mortgage, b\c that's the only way to be able to afford to own a home!

Cars are the same way now!


Well, under normal circumstances a house will at least hold it's values or appreciate and it can be rented out in the event additional income is needed or when the market value drops.
Regular cars can only depreciate and are a liability. The owner will always take a hit, especially during long term loans where the owner is upside down on the loan for most of the term.

 

[dparm]

Originally Posted By: addyguy
I'm sorry, but I don't have a problem with super-long car loans.

Cars are f'ing expensive, and the only way most people these days can afford to have one is the spread the payments out...you would never fault someone for signing on to a 25-year mortgage, b\c that's the only way to be able to afford to own a home!

Cars are the same way now!



Comparing cars to homes is not a valid comparison.

 

[hattaresguy]

Originally Posted By: addyguy
I'm sorry, but I don't have a problem with super-long car loans.

Cars are f'ing expensive, and the only way most people these days can afford to have one is the spread the payments out...you would never fault someone for signing on to a 25-year mortgage, b\c that's the only way to be able to afford to own a home!

Cars are the same way now!


Property has value, cars are worthless.

A 96 month loan to me sounds like a good time frame to pay off an apartment complex, not a Honda Accord.

Lastly does the 16% include the buy here and pay here car lots? Those lots only deal with marginal credit and are everywhere in poor areas.