Late Car Payments Hit Record High

Late Car Payments Hit Record High

Today the Washington Post featured a piece that highlights what we at Tematica have been saying for months and is highlighted in our Middle-Class Squeeze investment theme. All is not well in many American households at a time when unemployment is at a 50-year low, there are more job openings than there are job seekers and the powers that be keep telling us how great things are. The Post article noted:

A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported Tuesday, even more than during the wake of the financial crisis era.

This is particularly concerning given that a car is often more important than even making a mortgage payment or a credit card minimum payment as it is how most people get to work.

A car loan is typically the first payment people make because a vehicle is critical to getting to work and someone can live in a car if all else fails. When car loan delinquencies rise, it’s a sign of significant duress among low-income and working-class Americans.

Given that the population has increased since the Financial Crisis, the actual percent of auto loan borrowers that were 3-months or more behind on their payments is at 4.5% versus the peak of 5.3% in late 2010, but the record high number is concerning at a time when the economy is supposedly firing on all cylinders. What happens when it really does slow?

We are seeing similar worrying signs in the recent Federal Reserve Senior Loan Officer Survey which found that demand for consumer loans is in full-on contraction. This is not something you see when the economy is strong and people are confident about their financial future.

We will be discussing this and much more in our Context and Perspectives piece to be released later this week.

Source: A record 7 million Americans are 3 months behind on their car payments, a red flag for the economy – The Washington Post

Auto Loans and Household Income – Time for a Reality Check!

Auto Loans and Household Income – Time for a Reality Check!

In general, I tend to be a very positive person. I’m decidedly in the glass-is-half-full camp and even though no one would accuse of me being a morning person, I love watching the sunrise, large cup of joe in hand of course, with a smile on my face as I contemplate what mischief I may get myself into as the day unfolds.

I say this because the ubiquitous “Consumer is doing great” refrain is putting me in the uncomfortable position of feeling like a perpetual Debbie Downer, a role that is not in my nature, but I feel obligated because the mainstream financial media is telling a tale that needs a reality check.

If households are doing oh so fabulously, then why this?

In the first nine months of 2016, around 32 percent of U.S. vehicle trade-ins carried outstanding loans larger than the worth of the cars, a record high, according to the specialized auto website Edmunds, as cited by Moody’s.

The non-recovery recovery is lifting off and yet one-third of trade-ins during the first three-quarters of last year were underwater? The delinquency rate for subprime auto loans is at the highest level in at least seven years while used vehicle prices are dropping sharply, as the market is flooded with off-lease vehicles. The NADA’s Used Vehicle Price Index was down 8 percent year over year through February 2017, the eighth consecutive monthly decline and the sharpest monthly decline since November 2008. Asset-backed securities based on auto loans are starting to show signs of stress and a growing proportion of the auto loan asset-based security market is now made up of “deep subprime” deals.


Yeah, that doesn’t bring back any housing crisis nightmares.

Oh and then there is this sticky little bit that paints a seriously less-than-rosy picture of household finances, the Sentier Research Median Household Income Index. The red line is the index and the black line is the unemployment rate. The index was set to 100 back in January 2000 and today is at a whopping 98.7. Yep, that’s a brutal seventeen years later and the median household is worse off, yet the talking heads keep telling us that things are going oh so great.

We’ve also talked here at Tematica about the lack of wage gains. Recall that just a few weeks ago we learned that,

From February 2016 to February 2017, real average hourly earnings decreased 0.3 percent, seasonally adjusted. The decrease in real average hourly earnings combined with no change in the average workweek resulted in a 0.4-percent decrease in real average weekly earnings over this period.

So over the past year real average weekly earnings have fallen and yet, consumer credit keeps growing. In the fourth quarter of 2016, consumer credit rose 6.5 percent on a year-over-year basis and averaged 6.2 percent year-over-year growth during 2016. Think about that for a second – falling wages but borrowing more. Does that sound like things are improving and does that really sound like a sustainable trend? Declining incomes coupled with rising credit doesn’t bode well for future buying trends.

Today we’ll get the latest on Consumer Confidence and the S&P/Case-Shiller home price index update. I’m sure the mainstream financial media will be clapping their hands over just how glorious it all is.

I’m going to go find myself a spot of sunshine and plot my next move with bonds.


Source: Plateau in US auto sales heightens risk for lenders: Moody’s

Uh-oh! Subprime credit card growth leading to more missed payments

Uh-oh! Subprime credit card growth leading to more missed payments

We’ve seen this before, and it tends not to end well. This time around it happening not so much in housing, but in auto loans and credit cards… and just like last time, it’s not likely to end well. What it does mean is there will be more Cash-Strapped Consumer that aren’t able to tap those credit cards to eek on by each month. It also probably means problems ahead for auto companies like Ford Motor, General Motors and Fiat Chrysler that are already using incentives to entice buyers.


According to a report by The Wall Street Journal, which cited the TransUnion data, missed payments on credit cards that credit card companies issued more recently are at a higher rate than older credit cards. What’s more, close to 3 percent of outstanding balances on credit cards that were issued last year are at least 90 days behind on payments six months after the purchases were charged. In 2014, the paper noted the rate was 2.2 percent for credit cards issued in 2014 and 1.5 percent for credit cards issued in 2013.

The increased miss payments on the credit cards that were issued in 2015 moved the 90-day-or-more delinquency rate for the entire credit card industry to 1.53 percent in the third quarter, which WSJ said is the highest level since 2012.

The big culprit for the missed payments? Lenders increased the amount of lending it did to subprime customers starting in 2014 and continued to do so more recently. Citing Equifax, WSJ pointed out that, in 2015, credit card companies issued slightly more than 20 million credit cards to subprime borrowers, up 20 percent from 2014 and up 56 percent from 2013.

Source: Credit Card Companies’ Focus On Subprime Increases Rate Of Missed Payments – Credit Card Missed Payments Increasing |