Wolf Richter Talks Shop on Canadian Radio.
Here I am with radio host Jim Goddard on This Week in Money, discussing nuts and bolts of the US and Canadian auto industry (my part on the car business ends when the music and ads start).
Automakers’ efforts are “chaotic for retailers and confusing for consumers.” Read… As Car Sales Plunge, Auto Dealers are Not Amused
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Great presentation of the auto industry and the issues currently in the USA.
Out of the 1.1 trillion dollars owed on auto loans, has there been any estimation of how much of that is sub prime?
These loans have been rolled into “other” financial products.
Derivatives in the form of CDO’s – Credit Default Obligation, along with their corporate cousins of junk bonds.
Here’s a good idea; PIK Bonds (Payment-In-Kind)
The bond issuer incurs additional debt to create new bonds, for the yield payments on the original bonds. Piling debt on debt to pay debt!
The corporate bond sector is in a bubble. Junk bonds yields are near record lows. Issuance of covenant-lite bonds with no protections and can pay yields, not in cash, but with more bonds, is at or near all time highs.
The problem is not government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives. We now have $13.4 trillion in the world of negative yielding debt. Where is this money going to go in search of positive yield and protection? It will not remain where it is receiving negative or no yield forever. It is going to find tangible real assets such as; Gold, silver, real estate, etc.
Trust in the system is breaking down. For the first time since the Great Depression we are into a second recession within an ongoing depression. People are afraid. They look at what is going on with the leadership and they are getting scared.
“Where is this money going to go in search of…protection?… It is going to find tangible real assets such as…real estate …”
Some of us don’t have to “go” anywhere. We have been there for years, enjoying AND using it, and will remain there.
I don’t know about the total balance. But about 25% of newly originated auto loans are subprime.
According to Equifax, of the auto loans in the portfolios of banks and credit unions, about 13% are subprime. Among “captive” finance companies (such as Ford Credit) and independent finance companies (such as Santander USA), subprime makes up about 35% of their total loan portfolio.
Yet another nail being driven into the coffin of the US auto industry . 1700 auto mechanics across the greater Chicago area dealerships on strike . With AW reporting this may be the portends of things to come as pay and benefits continue to decline at the dealerships despite the increase in skills etc necessary to do the job .
It all can be summed up with a few words “Most people do not change cars every year and during economic crisis they tend to keep their car instead of buying a new one. And if they have to get a new car if a new one is too expensive, they get a used one instead.”
Simply put the bubble crash happened because people forgot that people do not buy cars every year.
Just like the bubble car crash before this one happened and the next will happen.
Because people doesn’t seem able to remember what happened just like a decade or so ago. Or they don’t care to find out.
“Simply put the bubble crash happened because people forgot that people do not buy cars every year. ”
Well, thanks to the “magic” of leasing, some folks are cornered into having to replace their vehicle every three years. That isn’t a new one every year, but it is closer than those who purchase the vehicle outright.
Since the leased vehicles are in a sense “financed”, I wonder how many of those leases have been made to borrowers that would be considered sub-prime if they had purchased instead?
As retired boomers, my husband and I share one car versus the two we always needed to get to work. We have a 2011 purchased used Honda Accord that we expect to drive 5,000 miles per year or less.
We may need a “newer” car in 8 or 10 years here in South Florida. Our demand for vehicles is way down and despite fabulous credit scores we are not enticed by the high prices of new vehicles. I suspect this is true of a growing segment of retirees….
” …despite fabulous credit scores we are not enticed by the high prices of new vehicles. I suspect this is true of a growing segment of retirees….”
You nailed it. We’re in about the same place – retired, don’t need commuter cars. The vehicles (3) we own will serve our needs for the foreseeable future. They’re all older, but well-maintained and each serves a specific niche in our lifestyle. With the availability of resources like dial-a-ride, Lyft, Uber and 35 cent (!) senior fare on the LA transit system, no need to consider buying ANYTHING – new or used.
We know lots of others in similar situations who are unlikely to purchase replacement vehicles anytime soon. These are folks with serious $$$ who could buy whatever transportation they want but are simply not in the market. YMMV!
down 9% in UK
– Any idea what happened with the price of gasoline in the UK ? And with the price of petrol in the UK ?
– The GBP/USD peaked at ~ 1.70 in mid 2014 and went down some 25% afterwards.
– I think the falling GBP/USD was one MAJOR reason why the Conservatives lost their majority in parliament in the UK elections last june.
Currency had nothing to do with it. New Labour, left wing career politicos blew up previously, Tories will blow up in the next cycle. The two alt candidates were UKIP and Corbyn/ Momentum. UKIP has blown up so the only alt candidate is Corbyn.
There is a real income squeeze hence crashing savings rate, falling discretionary spending like new cars, uncertainty over Brexit, lot of Brexit disinformation. I think people know adjustment is coming and are voting for it. in the same way you in the end go to the dentist or doctor as you know something needs to be done. I think US tax reform might prop up corp margins and head off a recession for a few more quarters, but the outlook in the UK is recessionary I think. No tax reform, falling margins, Brexit uncertainty etc massive debt bubble.
– The FED also tracks the amount of carsales in the US.
and search for “US car sales”.
– Think: rising gasoline prices.
We pay over $1.50 a litre here so the price of crude doesnt affect it so much
– Is the UK now using the metric system (e.g. litre). I thought the UK was still using gallons ?
– $ 1.50 per litre is about $ 5.5 per US gallon. Ouch.
– The falling GBP/USD does make USD denominated imports (much) more expensive.
– I fear the GBP will fall more against both the USD and EUR. Think: Current Account Deficit.
– The 2 articles below think that (a lot of ???) US citizens are unable to afford new car(s).
The UNZ.com article is an analysis of the elections in the US (november 2016) and the elections in the UK (june 2017). But it contains an interesting piece of info regarding the ability of US citizens to buy a new car.
Perhaps one Wolf Richter is willing (and able ??) to pull up the relevant data to see whether or not the “affordability” claim is correct ? It could be a good reason to write a new post on this blog.