So here's the deal, auto companies are financing cars now for up to 8 years, that's 96 months and they're selling to more and more subprime borrowers with horrible credit so watch out below.
According to Fitch, delinquencies of 60 days or more on these subprime loans are now quickly closing in on 6%. These loans are going bad faster than they did during the 2008-2009 financial crisis......so what does that mean exactly?
Get this more than 30% of the all trade in's that are turned in for a new car are under water, that's 1 out of every 3 and when I say under water I mean by nearly 5k under water. Both the 30% and the near 5k negative equity is the worst in the history of car loans, way worse than during the free fall in the economy during 2008-2009. So when one of these people trade in their car for a new one, they are 5k in the hole before they even drive the new one off the lot, which adds to the lost value of the actual new car once they do drive it off the lot as everyone knows or should know, cars are depreciating assets instantly as soon as the ink drys on your signature, before you even put the key in the ignition.
What this means is the auto industry is huge, if this party ends, or rather I should say when it ends it is going to be one hell of a hangover for a lot of industries and jobs.
Imagine also how the car rental companies are going to fare considering they are buying new cars with leverage everyday and can barely turn a profit when things are supposedly great. Take a look at Hertz and Avis stocks if you don't believe me.
Watch out below......
There's also a huge glut of used cars on the market. Prices of used cars have been dropping. That can't be good for the sellers of new cars.
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