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Just because an economic decline isn't as bad as the Great Depression doesn't mean it isn't a depression, anyway, and the fact that auto loan delinquencies and repossessions aren't as bad as they were during the so-called Great Recession -- (I'd have called it a depression, nonetheless) -- is no reason to think that we don't have a new economic crisis on our hands.

The credit-rating folks at Experian reported the other day that 30- and 60-day delinquencies on auto loans jumped in the first quarter, as did repossessions, but because they're not as bad as they were during the depths of the financial crisis, it's not as bad as you think. "Today's subprime borrower," Experian said, "is less delinquent than those in the past." 

Great, except even Experian expects subprime auto loans to continue deteriorating. First quarter 30-day delinquencies rose 1.3% compared to the year-ago period, while 60-day delinquencies shot 12.4% higher. Repossessions surged 16.9%, as finance companies had to reclaim 52% more vehicles, only partially offset by banks experiencing a 15% decline. 

What those numbers suggest is that more borrowers were turning to the specialty finance market to get their money, and more of those people had shakier finances. In fact, more than 35% of people getting a loan fell outside the parameters of a "prime" borrower.

U.S. automakers, at least, are seeing their numbers float higher as a result. Ford (NYSE: F  ) enjoyed an 18% increase in overall sales in April, leading General Motors and Chrysler, which both saw sales climb 11% higher.

Foreign automakers didn't have the same kinds of good fortune, however. Although Nissan's sales surged 23%, Mazda, Mitsubishi, and Toyota all recorded declines, leading to the fifth consecutive month of falling domestic auto sales.

Lending, though, continues to rise, as auto loans from all sources in the quarter rose to $720 billion, up 9.6%, fueled, as Reuters reported, by the Fed's zero interest rate policies that are encouraging more speculative borrowing, even as it pumps the stock market to new highs. People are refinancing their mortgages and using the savings to buy cars. Seems we never learn, because the amounts that lenders are charging off also widened by 9.8%.  

A lot of pundits were declaring "mission accomplished" when the auto industry reported sales that were near pre-recession levels of 15.5 million cars, but it seems a lot of that could have been just the effects of Hurricane Sandy pulling forward a lot of sales, as seasonally adjusted auto sales fell below 15 million vehicles again in April, the first time since October that that's happened.

As sales decline, and borrowers turn to riskier loans, a new lending bubble forms, though not nearly as devastating if it pops. Yet, the auto industry isn't nearly as healthy as has it been made out to be, fueled, as it is, only by feckless Fed policies. Let's hope the air coming out of the bubble is only a slow leak that will allow carmakers to maintain control of the wheel, and not a sudden blowout that causes them to run off the road.

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  • Report this Comment On May 16, 2013, at 10:11 PM, oldshack wrote:

    i am puzzled by the omission of hyundai/kia from all the stories about auto sales. they do make some in the USA and actually sell them here as well as overseas. I believe they are the 4th highest seller in the world. is it because their stock is not traded?

  • Report this Comment On May 17, 2013, at 3:43 PM, TMFTwoCoins wrote:

    Nice article, Rich. Although if I remember correctly without digging up the info, Ford and GM's sub-prime lending remained flat at about 5%. Chrysler's sub-prime lending on the other hand soared last year, up to almost 25% of their sales.

    Hopefully the SAAR numbers reflect replacement and pent up demand, rather than excess sub-prime lending.

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