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> And household debt has grown no faster than household income and is concentrated in households best able to pay it back. I'm not so sure about this - what I'

by chiph 7y ago

> And household debt has grown no faster than household income and is concentrated in households best able to pay it back. I'm not so sure about this - what I'm thinking is that the next (current?) bubble is in auto lending. I'm seeing tons of advertisements saying "We will lend up to 72 months with very little down". With the average new car priced around $37500 that's a payment in the mid $500's for someone with good credit. And I suspect the people doing this only have an average credit score so theirs will be higher.

dsfyu404ed 7y ago
There's been a lot of apprehension around auto lending for a long time. I'm not sure what a crash would look like though.
- smt88 7y ago
  Very different from a housing crash in important ways, that's for sure. Vehicles are much more "liquid" -- they're portable and fungible to some extent. A bank repossessing many vehicles will get much more of its money back than a bank trying to sell foreclosed houses.
  - dsfyu404ed 7y ago
    While I would totally love to see a used vehicle price crash because it would be good for me personally and to stick it to the "hurr durr, muh resale value" types, I'm not convinced that wouldn't have reverberations throughout the market.
    - smt88 7y ago
      I agree it would reverberate. I just don't know if it would be the first domino to fall in a massive economic crisis, the way housing was.
  - gizmo686 7y ago
    Vehicles also lose much more of their value than houses. The second you drive a new car out of the dealership, you are underwater unless you made a good downpayment; and it is not uncommon for people financing cars to find themselves underwater on their current one if they want to upgrade (or sell/downgrade to get out of debt). And that is in a good market. If there is a surge in used car supplies, we will see them depreciate even more. In contrast, in a typical market, it is uncommon for houses to be underwater, as they tend to appreciate in value. It took a crisis in the housing market for a large portion to go underwater. A simmilar crisis in a market where underwater is the norm would just push them further under.
    - smt88 7y ago
      > Vehicles also lose much more of their value than houses. In a housing bubble, houses lose a lot of their value because the buyer side of the market shrivels up.
  - edoceo 7y ago
    Banks, and really all loans, make mad cash the first few years, 90%+ of the payment is interest. For cars, that's like 18mo, for homes it's a few years of good cash flow for the bank, and the home appreciate (cars don't) so when the bank is flipping a flipping a foreclosure, they still make out great.
    - smt88 7y ago
      > the home appreciate In a housing crash, this is exactly what doesn't happen.
venantius 7y ago
My theory 2 years ago was that the likes of Uber, Lyft et al. would cause more and more people to buy new cars that couldn't really afford it. Should demand for ride sharing ever stall or fall off, the continued increase in people entering the "gig economy" workforce in such a levered manner would be catastrophic to the auto loan industry.
- jjeaff 7y ago
  I think uber recently killed of it's in-house leasing program. But I imagine they may have a huge amount of liability on the books depending on how many of those leases haven't expired yet.
StevePerkins 7y ago
> With the average new car priced around $37500 That's absolutely jaw-dropping. I assumed that was a made-up Internet stat, and was going to ask for a cite, but some quick web searching confirms it. I'm a used car guy, typically buying vehicles 2-3 years old, and would never contemplate paying above $20k. Even a brand new sedan (e.g. Nissan Altima, Honda Accord) is around $23k MSRP. A crossover family vehicle (e.g. Nissan Rogue, Honda CR-V) is around $25k. What on earth are people purchasing, that the AVERAGE price is a low-to-mid range Mercedes?
- jstarfish 7y ago
  Pickups and SUVs with insane markups and profit margins. A Ford F150 Raptor's MSRP is something like $60-70k.
  - deleted 7y ago
    [deleted]
  - gruez 7y ago
    >Pickups and SUVs with insane markups and profit margins. dumb question: why do pickups/suvs have insane markups/profit margins?
    - itsaidpens 7y ago
      Think about this - the same amount of tech, of engineering, of “stuff” like window regulators, speakers, steering wheel, etc goes into a subcompact 4 door as does a 4 door SUV, minus cheap stuff like body panels interior carpet.
    - rdtsc 7y ago
      There's a demand for them. SUV are quite popular for families who don't want to "drive minivans" but they still want a large vehicle to fit in everyone. Others buy it because of the perceived safety, larger vehicle so they feel more "protected". Trucks are just what you drive in rural areas. And there are a lot of small towns and rural areas. Companies noticed that people are shelling out $40k for them, so they started selling them for $50k. $50k and they are being bought still? Ok, time to charge $60k, and so on.
deleted 7y ago
[deleted]

by chiph 7y ago

dsfyu404ed 7y ago

There's been a lot of apprehension around auto lending for a long time. I'm not sure what a crash would look like though.

smt88 7y ago
Very different from a housing crash in important ways, that's for sure. Vehicles are much more "liquid" -- they're portable and fungible to some extent. A bank repossessing many vehicles will get much more of its money back than a bank trying to sell foreclosed houses.
- dsfyu404ed 7y ago
  While I would totally love to see a used vehicle price crash because it would be good for me personally and to stick it to the "hurr durr, muh resale value" types, I'm not convinced that wouldn't have reverberations throughout the market.
  - smt88 7y ago
    I agree it would reverberate. I just don't know if it would be the first domino to fall in a massive economic crisis, the way housing was.
- gizmo686 7y ago
  Vehicles also lose much more of their value than houses. The second you drive a new car out of the dealership, you are underwater unless you made a good downpayment; and it is not uncommon for people financing cars to find themselves underwater on their current one if they want to upgrade (or sell/downgrade to get out of debt). And that is in a good market. If there is a surge in used car supplies, we will see them depreciate even more. In contrast, in a typical market, it is uncommon for houses to be underwater, as they tend to appreciate in value. It took a crisis in the housing market for a large portion to go underwater. A simmilar crisis in a market where underwater is the norm would just push them further under.
  - smt88 7y ago
    > Vehicles also lose much more of their value than houses. In a housing bubble, houses lose a lot of their value because the buyer side of the market shrivels up.
- edoceo 7y ago
  Banks, and really all loans, make mad cash the first few years, 90%+ of the payment is interest. For cars, that's like 18mo, for homes it's a few years of good cash flow for the bank, and the home appreciate (cars don't) so when the bank is flipping a flipping a foreclosure, they still make out great.
  - smt88 7y ago
    > the home appreciate In a housing crash, this is exactly what doesn't happen.

venantius 7y ago

My theory 2 years ago was that the likes of Uber, Lyft et al. would cause more and more people to buy new cars that couldn't really afford it. Should demand for ride sharing ever stall or fall off, the continued increase in people entering the "gig economy" workforce in such a levered manner would be catastrophic to the auto loan industry.

jjeaff 7y ago
I think uber recently killed of it's in-house leasing program. But I imagine they may have a huge amount of liability on the books depending on how many of those leases haven't expired yet.

StevePerkins 7y ago

> With the average new car priced around $37500 That's absolutely jaw-dropping. I assumed that was a made-up Internet stat, and was going to ask for a cite, but some quick web searching confirms it. I'm a used car guy, typically buying vehicles 2-3 years old, and would never contemplate paying above $20k. Even a brand new sedan (e.g. Nissan Altima, Honda Accord) is around $23k MSRP. A crossover family vehicle (e.g. Nissan Rogue, Honda CR-V) is around $25k. What on earth are people purchasing, that the AVERAGE price is a low-to-mid range Mercedes?

jstarfish 7y ago
Pickups and SUVs with insane markups and profit margins. A Ford F150 Raptor's MSRP is something like $60-70k.
- deleted 7y ago
  [deleted]
- gruez 7y ago
  >Pickups and SUVs with insane markups and profit margins. dumb question: why do pickups/suvs have insane markups/profit margins?
  - itsaidpens 7y ago
    Think about this - the same amount of tech, of engineering, of “stuff” like window regulators, speakers, steering wheel, etc goes into a subcompact 4 door as does a 4 door SUV, minus cheap stuff like body panels interior carpet.
  - rdtsc 7y ago
    There's a demand for them. SUV are quite popular for families who don't want to "drive minivans" but they still want a large vehicle to fit in everyone. Others buy it because of the perceived safety, larger vehicle so they feel more "protected". Trucks are just what you drive in rural areas. And there are a lot of small towns and rural areas. Companies noticed that people are shelling out $40k for them, so they started selling them for $50k. $50k and they are being bought still? Ok, time to charge $60k, and so on.

deleted 7y ago

[deleted]