Ka-Boom
Termites start low and work their way up. By the time you notice them, it’s often already too late to save the place. All you can do is rebuild, start over.
This analogy may be useful in terms of understanding what’s going on in the car business… on the lower end of that business. And what that could portend for the rest of the business – ostensibly “doing gangbusters,” according to mainstream media accounts.
You know … like the housing market was “doing gangbusters” a few years back.
Until, of course, it wasn’t.
Well, check this:
The number of “subprime” car loans being sold is increasing – and so is the number ofdelinquencies on those loans. They are up to 5.16 percent, the highest level in 20 years.
Consider what this means.
First, a growing number of people cannot get traditional loans for new cars. They lack the verifiable income to qualify – or their credit scores suck. But financial flimflam outfits are loaning them money – often, at exorbitant interest – nonetheless.
Sound familiar?
It does to Comptroller of the Currency Thomas Curry, who recently said “… what’s happening in the auto loan market reminds me of what happened in mortgage-backed securities in the run-up to the (housing) crisis.”
Second – and not surprisingly – these loans are being defaulted on in growing numbers. Apparently, people who can’t swing a mainline loan at 3 or 4 percent interest are having trouble keeping up with loans that have interest rates twice as high.
Who’d a thunk it?
Now, are talking about $25 billion in subprime auto loans. Will Uncle step in – once again – and bail out the shysters issuing these loans with more of our money?
Of course he will.
Spending other people’s money is not only what Uncle does best – it’s all that Uncle does. He hasn’t got a penny of money that’s not been taken from others first. Why not be generous? There’s always more where that came from.
But this rant is not primarily about Uncle and his bottomless generosity with other people’s money.
It’s about what the bubbling trouble in the subprime auto loan mark says – canary in the coal mine-wise – about the health of the car industry generally.
Consider:
If – as the numbers suggest – more and more people are having trouble getting conventional car loans, either they are uncreditworthy or cars are too expensive for them (relative to income).
This latter thing is the canary in the coal mine.
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