Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

Subprime Auto Loans Up, Car Sales Down: Why This Could Be Good for Gold

Interest-Rates / Auto Sector Jul 14, 2017 - 11:58 AM GMT

By: HAA

Interest-Rates

The latest monthly motor vehicle sales report released on July 3 paints a grim picture for US car sales. Overall June sales dropped by 3% compared to June of last year—the sixth successive month of lower year-over-year sales.

General Motors, Ford, and Fiat Chrysler were among the greatest losers with declines between 4.7% and 7%. Japan’s top sellers fared a little better, with Nissan seeing 2% growth and Toyota a 2.1% gain.


Economists and Street pundits seem to be stumped as to why Americans are so reluctant to buy cars. Hypotheses that are being bounced around range from tight credit markets to costlier car loans, to negative consumer sentiment about the economy.

Sales have fallen off a cliff, compared to 2016, a record year for the auto industry. In the first six months of this year, vehicle sales hit their lowest point since 2014, and consumer traffic at dealerships fell to a five-year low.

Who’s the main culprit here? Many signs point to subprime auto loans…

Subprime Auto Loans: A Wolf in Sheep’s Clothing

As car sales are plunging, the number of risky car loans is rising… and so are incidents of credit fraud. In a UBS survey, one in five borrowers admitted that their applications contained inaccuracies.

However, lenders are actively participating in building this particular Potemkin village. The biggest auto loan provider, Santander, is under investigation in at least 30 states for fraudulent lending practices and recently settled a lawsuit for $25 million.

Rating service Moody’s reported that Santander verified the incomes of just 8% of borrowers whose loans it recently packaged into a $1 billion bond issue. Furthermore, on top of unverified income, 9% of those borrowers had low or no credit scores and no co-signer.

A FICO score below 640 is deemed subprime. At the end of the first quarter, 22.3% of Santander’s retail installment contracts (RICs) showed credit scores under 540. Only 13.8% of borrowers had scores over 640.

Unsurprisingly, 12.8% of these loans were delinquent by the end of the first quarter, handing Santander a net loss of $72 million for the quarter—and further losses are expected.

Loan duration has dramatically risen as well. In the 1990s, a typical auto loan was 48 months. But due to climbing car prices and stagnating incomes, buyers are now asking for longer loan terms to reduce monthly payment amounts.

The fastest-rising class of loans is now 73–84 months, unprecedented for a quickly depreciating asset like a car. 32.1% of new vehicle loans in Q4 2016 were in that group, compared with 29% year over year. Even in the used-car financing segment, those “eternity loans” made up 18% of share.

More traditional banks like Wells Fargo have started to reduce their auto loan business amid deteriorating loan performance. The bank reduced overall loan origination by 30% and curtailed exposure to subprime loans by 27% in the first quarter.

Wells Fargo’s CEO Tim Sloan said auto loans are currently the business with the biggest potential for a “negative credit event.”

However, while major Wall Street banks like Wells Fargo and JPMorgan are more reluctant than last year to make car loans on their own balance sheets, they packaged more loans from finance companies into bonds in Q1 2017 than in last year’s first quarter, and are still among the top underwriters of the securities.

How This Could Be Good for Gold

Thankfully, this is unlikely to become a rerun of the 2008 subprime mortgage collapse.

Compared to the $8.4 trillion mortgage market, the US auto loan sector is small with only $1.1 trillion in loans. It’s also not nearly as leveraged through securitized products—and a car is much easier to repossess than a home.

However, that doesn’t mean a potential implosion of this shaky sector isn’t a threat to the US economy.

It’s quite likely that the exuberant 2016 auto sales figures were inflated by easy-to-get subprime loans with low, long-term payments, enticing buyers to purchase more car than they could afford.

Now that the loans are beginning to deteriorate and subprime buyers are no longer in the market or tapped out, we’re beginning to see the real picture—which is much less rosy than it seemed just a year ago.

Given that the auto sector is a massive part of the economy, this could be an early warning sign of a slowing economy. That, in turn, would be good for the gold price. If the Federal Reserve feels compelled to slow down or even reverse its ramping up of interest rates, gold is poised to rise.

The writing is on the wall: the Atlanta Fed just revised its GDP estimate for the second quarter to 2.7%, from previously 3%.

Get a Free Ebook on Precious Metals Investing

Right now is a great time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first. The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.

© 2017 Copyright Hard Assets Alliance - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable,but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules