In a demolition derby, lots of old cars usually are destroyed while overweight, poorly dressed, and Americans both of and within a questionable mental state (often in both at the same time) look on with amusement. There is a kind of demolition about to take place, but this is of the automobile industry amid a rise in crushing loan debt, for with people out of work, Zero Hedge reports that there is an incoming wave of automobile repossessions at hand.
n a sign of upcoming trouble, Subprime Car Buyers Miss Loan Payments.
Credit Acceptance Corp., the lender to car buyers with subprime credit scores, warned it’s seeing a sharp drop-off in payments as people shift their financial priorities to get through the coronavirus pandemic.
As unemployment soars, borrowers are putting off payments or “reallocating resources,” Credit Acceptance said in a regulatory filing Monday, explaining that it needs more time to publish a quarterly report.
New lending is also slowing as dealerships across the U.S. are forced to shutter their lots, the company said.
Ally Financial Inc. said on Monday that about 25% of its auto-loan customers have taken advantage of its payment-
deferral program.The filing by Credit Acceptance shows some consumers already can’t keep up.
Meanwhile, loan applications have plunged as dealers have closed their lots. (source)
If one remembers, up to the virus crisis, there were lots of “bad credit – no credit – no problem” auto institutions offering loans.
I warned for years on Shoebat.com, which you can read in the archives, that this is exactly what happened leading up to 2007, and that what we saw was 2007 preparing to repeat again.
It is good to try to help poor people, but banks have never been about charity, but about profits even at the direct exploitation of one’s fellow man.
The fact is that auto loans, while sometimes necessary, are a good indicator of economic health because while never good, a loan from a borrower in good financial health usually means that things will be OK, but when loans are marketed to people who should not receive loans for the simple fact that they are in a high-risk credit bloc, that is a very bad sign and it will likely cause serious economic problems, not because the people are “bad”, but because they have no way to pay back that which they borrowed.
For years, bad debt with auto loans was issued, and the bad debts were structured into bonds promising high returns and ‘security’ but were actually high-risk bonds. The entire situation was a blatant lie.
Now, years later in the future, the full effects of this are being revealed. The loan situation is a nightmare, people are going to go broke, and as they are unable to pay their auto loans, does one also not think they will not suffer with loans for housing or for college?
The US economy has been built on a house of cards, and a strong wind gust from the virus is approaching it fast.