Do you remember the subprime mortgage meltdown from the last financial crisis? Well, this time around we are facing a subprime auto loan meltdown. Delinquency rates are up by double digit percentages, and major auto lenders are bracing for hundreds of millions of dollars of losses. We are a nation that is absolutely drowning in debt, and we are most definitely going to reap what we have sown.
The excerpts above and below, from an article by Michael Snyder (theeconomiccollapseblog.com), have been enhanced – edited ([ ]) & abridged (…) – by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a faster and easier read.
In recent years, auto lenders have become more and more aggressive, and they have been increasingly willing to lend money to people that should not be borrowing money to buy a new vehicle under any circumstances. Just like with subprime mortgages, this strategy seemed to pay off at first, but now economic reality is beginning to be felt in a major way.
The size of this market is larger than you may imagine. Earlier this year, the auto loan bubble surpassed the one trillion dollar mark for the first time ever…and the average size of an auto loan has reached…a record high of $29,880…[with] the average monthly auto loan payment now up to a record $499/month.
$499/mo. is the average loan size [which,] to me, is absolutely infuriating, because only a very small percentage of Americans are able to afford a $499 monthly payment on a single vehicle. Many middle class American families are only bringing in $3,000 – $4,000 a month, before taxes, so how in the world do they think that they can afford a five hundred dollar monthly auto loan payment on just one vehicle?
Just like with subprime mortgages, people are being taken advantage of severely, and the end result is going to be catastrophic for the U.S. financial system. Auto loan delinquencies are rising to very frightening levels…
- 60 day subprime loan delinquencies were up 13% in July on a month-over-month basis and up 17% compared to the same month last year.
- Prime delinquencies were up 12% in July on a month-over-month basis and up 21% compared to the same month last year.
We have a huge crisis on our hands, and major auto lenders are setting aside massive amounts of cash in order to try to cover these losses. The following comes from USA Today:
- In a quarterly filing with the Securities and Exchange Commission, Ford reported in the first half of this year it allowed $449 million for credit losses, a 34% increase from the first half of 2015.
- General Motors reported in a similar filing that it set aside $864 million for credit losses in that same period of 2016, up 14% from a year earlier.
…It is undeniable that the stage is set for a crisis that will absolutely dwarf 2008:
- Our national debt has nearly doubled since the beginning of the last crisis,
- corporate debt has doubled,
- student loan debt has crossed the trillion dollar mark,
- auto loan debt has crossed the trillion dollar mark, and
- total household debt has crossed the 12 trillion dollar mark.
We are living in the greatest debt bubble in world history, and there are signs that this giant bubble is now starting to burst and, when it does, the pain is going to be greater than most people would dare to imagine.
Disclosure: The above article has been edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a fast and easy read.
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