4 ms·

If the cost of repossession is low it also means that riskier buyers are more likely to get financed.

lotsofpulp 4y ago
Good point!
BoorishBears 4y ago
This is a pretty naive take if you're trying to paint it as enabling an even better outcome for "riskier buyers" This article is something like 5-10 years behind reality: Right now subprime auto loans are mostly enforced with GPS trackers that buyers are usually not made properly aware of, or even worse, tricked into paying for as an add-on pitched as being for their own benefit. https://www.nytimes.com/2017/02/19/business/dealbook/gps-devices-car-loans.html https://www.nytimes.com/2017/02/19/business/dealbook/gps-dev... - There are entire businesses built on selling poor people cars at truly insane interest rates, on payments they clearly can't afford, repossessing the cars on the cheap with GPS trackers, then selling then to the next poor person with bad credit. This grift isn't new, but cheap GPS trackers and license scanners reduced the cost per repossession in a way that enabled these places to be signficantly more brazen about it. Unfortunately the two prevailing takes I see on this are "they're subprime for a reason" as if they deserve it, and "well at least someone is still giving them a chance, you need a car in this country" (and of course some well meaning but ill informed people think you can just take public transport in every part of the country) The reality is this is worse than nothing in many cases. Buy here, pay here have people pay more frequently so that they can repo a car within days not months of someone buying them. The process isn't free either, it's disruptive, and they'll continue to leech off the owner in collections. - Overall it feels like a classic case of short sightedness from society. Saying we should directly subsidized subprime people's access to affordable loans and cars would be a non-starter: It sounds like some bleeding heart charity case making the responsible pay for the irresponsible. But then we'll all indirectly fund a much worse version of that when subprime auto loans start to implode (like they're probably already starting to with the interest rate hikes...) and we're all paying to pick up the pieces in multiple ways. If the bottom falls out the car market, well right now even middle class families are taking loans with insane terms that leave them underwater in a good market. The pain will trickle up and out from just subprime lenders and cars specifically.
- bko 4y ago
  People who give out car loans want you to pay back the loan. They don't want to repossess the vehicle. There is a real cost associated with it and you can't just take the car and make a profit. You'd be able to recoup what was owed and some costs may not be coupable. Again, they're not in the business to lend out money to people they know that can't afford it. There may be fraud at the individual level but the system doesn't work like that. The recovery rates for subprime auto deals are historically around 50% https://www.fitchratings.com/research/structured-finance/soaring-vehicle-values-support-record-auto-abs-performance-14-07-2021 https://www.fitchratings.com/research/structured-finance/soa...
  - BoorishBears 4y ago
    Not sure why you picked July 2021 on a monthly index... easily the most misleading month in the last decade: https://www.fitchratings.com/structured-finance/abs/auto-indices#u.s.-auto-indices https://www.fitchratings.com/structured-finance/abs/auto-ind... As soon as the government assistance I'm advocating dried back up we skyrocketed back to historical highs of subprime delinquency. And notice how when graphed together, right on the timeframe I describe of 5-10, you see a massive divergence between subprime and prime trends even in your own article. Recovery rates tell you percentages, not absolute scale. (graph is a stunning representation of our current K-shaped recovery btw) With cheaper repossessions the scale was what increased, and that's what Fitch is referring to with record performance. We gave more people than ever who couldn't afford loans loans, and so while the relative rate of recovery didn't change, delinquency went insane, and is gearing up to get even more insane with the interest rate hikes. > People who give out car loans want you to pay back the loan. I can't tell if this is just a naive or at least uninformed take. At a high enough level the financial system wants people to pay back loans... but that's not what's being discussed here. - There are dealers who want buyers to fail to pay. They're additionally enabled by both GPS trackers and license scanners to be even more efficient in their grift. Additionally, you accidentally exposed an amazing example of what I described in terms of "we will subsidize it either way" We don't provide a direct form of assistance specific to cars... but we did pay individuals to keep them afloat during the pandemic. They then had to take that money and pay subprime lenders to keep cars with exorbitant interest fees for longer, driving record profitability for the subprime market. Now interest rates are spiking, those people are losing their cars. They're in a more desperate situation than ever, with less assistance then when interest rates were better. Used car prices fell, but not enough to cover all the ground they gained during the heat of the pandemic. It's like this country just lets looming crisis walk up face to face without every trying to change course lest we seem like communists. To me this shouldn't even be a partisan issue, we can enable a smaller need for government intervention in the next economic slump by just not donating money to these lenders

Good point!

This is a pretty naive take if you're trying to paint it as enabling an even better outcome for "riskier buyers" This article is something like 5-10 years behind reality: Right now subprime auto loans are mostly enforced with GPS trackers that buyers are usually not made properly aware of, or even worse, tricked into paying for as an add-on pitched as being for their own benefit. https://www.nytimes.com/2017/02/19/business/dealbook/gps-devices-car-loans.html https://www.nytimes.com/2017/02/19/business/dealbook/gps-dev... - There are entire businesses built on selling poor people cars at truly insane interest rates, on payments they clearly can't afford, repossessing the cars on the cheap with GPS trackers, then selling then to the next poor person with bad credit. This grift isn't new, but cheap GPS trackers and license scanners reduced the cost per repossession in a way that enabled these places to be signficantly more brazen about it. Unfortunately the two prevailing takes I see on this are "they're subprime for a reason" as if they deserve it, and "well at least someone is still giving them a chance, you need a car in this country" (and of course some well meaning but ill informed people think you can just take public transport in every part of the country) The reality is this is worse than nothing in many cases. Buy here, pay here have people pay more frequently so that they can repo a car within days not months of someone buying them. The process isn't free either, it's disruptive, and they'll continue to leech off the owner in collections. - Overall it feels like a classic case of short sightedness from society. Saying we should directly subsidized subprime people's access to affordable loans and cars would be a non-starter: It sounds like some bleeding heart charity case making the responsible pay for the irresponsible. But then we'll all indirectly fund a much worse version of that when subprime auto loans start to implode (like they're probably already starting to with the interest rate hikes...) and we're all paying to pick up the pieces in multiple ways. If the bottom falls out the car market, well right now even middle class families are taking loans with insane terms that leave them underwater in a good market. The pain will trickle up and out from just subprime lenders and cars specifically.

bko 4y ago
People who give out car loans want you to pay back the loan. They don't want to repossess the vehicle. There is a real cost associated with it and you can't just take the car and make a profit. You'd be able to recoup what was owed and some costs may not be coupable. Again, they're not in the business to lend out money to people they know that can't afford it. There may be fraud at the individual level but the system doesn't work like that. The recovery rates for subprime auto deals are historically around 50% https://www.fitchratings.com/research/structured-finance/soaring-vehicle-values-support-record-auto-abs-performance-14-07-2021 https://www.fitchratings.com/research/structured-finance/soa...
- BoorishBears 4y ago
  Not sure why you picked July 2021 on a monthly index... easily the most misleading month in the last decade: https://www.fitchratings.com/structured-finance/abs/auto-indices#u.s.-auto-indices https://www.fitchratings.com/structured-finance/abs/auto-ind... As soon as the government assistance I'm advocating dried back up we skyrocketed back to historical highs of subprime delinquency. And notice how when graphed together, right on the timeframe I describe of 5-10, you see a massive divergence between subprime and prime trends even in your own article. Recovery rates tell you percentages, not absolute scale. (graph is a stunning representation of our current K-shaped recovery btw) With cheaper repossessions the scale was what increased, and that's what Fitch is referring to with record performance. We gave more people than ever who couldn't afford loans loans, and so while the relative rate of recovery didn't change, delinquency went insane, and is gearing up to get even more insane with the interest rate hikes. > People who give out car loans want you to pay back the loan. I can't tell if this is just a naive or at least uninformed take. At a high enough level the financial system wants people to pay back loans... but that's not what's being discussed here. - There are dealers who want buyers to fail to pay. They're additionally enabled by both GPS trackers and license scanners to be even more efficient in their grift. Additionally, you accidentally exposed an amazing example of what I described in terms of "we will subsidize it either way" We don't provide a direct form of assistance specific to cars... but we did pay individuals to keep them afloat during the pandemic. They then had to take that money and pay subprime lenders to keep cars with exorbitant interest fees for longer, driving record profitability for the subprime market. Now interest rates are spiking, those people are losing their cars. They're in a more desperate situation than ever, with less assistance then when interest rates were better. Used car prices fell, but not enough to cover all the ground they gained during the heat of the pandemic. It's like this country just lets looming crisis walk up face to face without every trying to change course lest we seem like communists. To me this shouldn't even be a partisan issue, we can enable a smaller need for government intervention in the next economic slump by just not donating money to these lenders