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Subprime strikes again:
Auto defaults are booming

CNBC, by Gabrielle Coppola

Original Article

Posted By:NorthernDog, 7/17/2017 1:40:01 PM

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide.(Snip) Few things capture this phenomenon like the partnership between Fiat Chrysler Automobiles NV and Banco Santander SA. Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines. Details of

Biggest problem is with Fiat-Chrysler and a foreign lender. Loans were handed out like candy to move vehicles off the lot.


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Reply 1 - Posted by: JediJerry, 7/17/2017 1:44:42 PM     (No. 11321536)

Not to worry! These big auto loan lenders are Too Big To Fail!!! US Taxpayers to the rescue!!!

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Reply 2 - Posted by: Whamdbambam, 7/17/2017 2:17:09 PM     (No. 11321566)

Wonder what part "cash-for-clunkers" played in all of this?

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Reply 3 - Posted by: Nevadadad46, 7/17/2017 2:36:35 PM     (No. 11321596)

I had a golden opportunity to get invited to participate in a business of buying up brand new "show room surplus" cars. I went to the Oklahoma City Auto Auction where new cars go to die at the massive (actually unbelieveable!!) combined car redistribution center there. Due to some shady partners, I back out of the deal at the last minute. But, here is what I learned-

Every year manufacturers make a percentage gamble on how many cars the public will buy that year. For example: If they guess 200,000 and the public only buys up 170,000, that year, 30,000 brand new cars have to be disposed of somehow. Incredibly, a large number of them are shredded! But, interested used car dealers and brokers can buy lots of 10 or 20 of these cars for pennies on the dollar at auction. If you hit the place at just the right time, you can buy a brand new, never owned Cadillac for a few thousand dollars. But, your timing has to be perfect and you have to have hard, cold cash and a truck ready to haul them off immediately. You also have to have all the licenses and permits in order. It´s quite complicated.

So, I can understand why the makers want all the most liberal lending policies in place to buy up their annual output as much as possible. It is a system that is perfectly suited for fraud and manipulation because there is so much pressure to just move those cars. Makers should not be so greedy because the cost of scrapping a percentage of their annual production output is figured into the price of all cars sold.

But, that is the nature of business; Greed and more greed. Make that money, get that bonus! The end completely justifies the process. And it does not matter who gets hurt.

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Reply 4 - Posted by: MattMusson, 7/17/2017 3:59:47 PM     (No. 11321730)

Subprime auto loans are not actually lent based upon repayment. The lender actually predicts WHEN the borrower will default.

"That guy will pay for 3 years and at the end the car will be worth $X"

The Problem is when repossessed car is only worth 1/2X dollars.

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Reply 5 - Posted by: franq, 7/17/2017 7:31:12 PM     (No. 11321954)

You mean I can´t lease an S-Class Benz for $199 a month?

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