And with that in mind I present you with a series of articles written by Tyler Durden-- one of the best Zero Hedge has to offer-- over the course of the last few months as he has tracked the automobile industry almost daily:
On October 22, 2015 Tyler wrote in his article, Auto Loan Market "Reminds Me Of What Happened Right Before The Crisis", Top Regulator Warns:
"All year we’ve warned that the auto loan market is beginning to look quite a bit like the housing market in the lead up to the financial crisis.
The dynamic is simple. It’s just the originate to sell model all over again and it’s having the predictable effect of causing underwriting standards to deteriorate. Banks can offload credit risk by packaging loans and selling ABS to investors thus freeing up their balance sheets to make still more loans.
The race to get in on the action causes banks to compete for an ever smaller pool of eligible borrowers. ZIRP adds fuel to the fire by i) enticing households to take on more debt, ii) creating demand for ABS as investors hunt for yield in a low rate environment"
Look folks, before we get any farther, you don't need to understand all the banking terms to figure out what is going on, economics are only complicated because banks want economics to be complicated. You know, baffle 'em with bullshit. In reality economics are simple: Tyler is using banker speak because his primary audience is bankers and investors.
What it all boils down to is this. If you've got something to sell and lots of people with lots of money want to buy what you have to sell then everything works for the better. But when the majority of your customers become high credit risks then prices must be inflated either directly or via interest so that someone can assume the risk. And as prices continue to become inflated fewer and fewer people fit into that category of having lots of money to buy whereas more and more people fall into the category of being high risk. And when that happens everything goes to shit.
On November 3, 2015 Tyler wrote: Subprime Auto Goes Full-Retard: Lender Sells $154 Million ABS Deal Backed By Loans To Borrowers With No Credit:
"Yes, the "best part is speed." We suppose the process is quite efficient considering there appear to be no underwriting standards whatsoever.
You read that right, your car loans are now considered so worthless they are being sold to companies with no assets to collect upon should they not be able to collect your loans. One needs not be an economics major to realize the stupidity.As for the "visionary" management team, have a look at the following profiles which seem to indicate that at least for some industry veterans, Santander Consumer isn’t quite subprime-y enough (note that there’s a Countrywide link in there as well for good measure):"
Now if you've been reading articles in the local News & Fishwrap you've been reading about record auto sales for the automobile industry but everything that goes up must come down and as Mr Durden points out in Chinese Auto Sales Crash, Inventories Soar In November on December 1, 2015:
"Despite ongoing exuberance at auto sales in America (which disappointed) - as crashing credit standards enable every Tom, Dick, and Muppet to buy too much 'depreciating asset' for their incomes - there are numerous problems few are talking about for automakers worldwide. Aside from "plans to buy a car" tumbling in the latest confidence surveys, and inventories-to-sales surging, China just poured ice cold water on any hope of stability in that 'growth' market as auto dealers issue the highest inventory alert since June. November data from China shows demand plunging, sales collapsing, and inventories soaring - a triple whammy of "no, things are not 'stabilizing'."
As sales begin to disappoint..."
Ouch, that has to hurt, Durden even knew the Chinese economy was set to crash. Why isn't this guy, Tyler Durden in charge of United States economic policy? Because he might fix it, that's why?
On November 19, 2015 Tyler hits the nail on the head with Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers in which he boldly notes:
"14% of the loans were made to borrowers with no credit score at all."My friends and family think I'm crazy because I want to start an American made moped company here in the Piedmont Triad but the more I look at what a burden cars have become the more I think a well built moped might be a great investment for a lot of Americans. I can literally design and build an enclosed moped that will exceed 150 miles per gallon (more with inline hybrids) and with normal maintenance last you an entire lifetime. All I lack is the money to get started.
On December 4, 2015 Tyler posted: Auto Loan Madness Continues As US Car Buyers Take On Record Debt, Lunatic Financing Term:
"In short, the “renaissance” in US auto sales is being driven (no pun intended) by increasingly risky underwriting practices and this is leading directly to the securitization of shoddier and shoddier collateral pools in a return to the “originate to sell” model that drove the housing bubble over a cliff in 2008.
As Comptroller of the Currency Thomas Curry recently put it, “what's happening in the auto loan market reminds me of what happened in mortgage-backed securities in the run-up to the crisis.”
Of course you can count on Experian and its incomparable senior director of automotive finance Melinda Zabritski (who never saw a subprime loan with ridiculous terms she didn’t like) to let you know that as dangerous as this dynamic most certainly is, everything will be fine.
On Wednesday, Experian released data for Q3 and well, let’s just say that the trend we’ve observed and documented over the past two quarters is still intact.
First, the percentage of new and used vehicles with financing rose to 86.6% and 55.3%, respectively. The trend is readily apparent:"
If you haven't figured it out by now, credit reporting companies like Experian are not your friends. They make money no matter which way this thing goes. Like the Merchant Bankers of old who financed both sides of European wars for centuries the winners always pick up the tab for the losers with Experian and others like them playing the roll of Merchant Banker.
I've not financed a vehicle since 1978 and have never been without a set of wheels having bought all my cars, trucks and motorcycles since then with the coins I empty from my pockets each night and toss into a bucket. And I've probably had fewer break downs than most reading this.
On January 5, 2016 Mr Durden wrote: US Auto Sales Plunge To 6-Month Lows - Biggest Miss Since Nov 2008:
"This is the worst second-half of a year since 2008..."
Isn't it amazing that we here at EzGreensboro.com have been warning you the bottom was about to fall out of our economy once again? Now the question must be asked: Considering that it was subprime lending that forced the FED's bailout of the "too big to fail banks" will subprime lending again require a bailout of perhaps these same lending institutions or others just like them? And can we bear the cost considering that most of us are still reeling from the effects of the last time?
Before you answer that, it gets worse.
For on January 8 2016 Durden wrote Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years in which he said:
"What was just as disturbing was that "plans to buy an auto" had tumbled the most since January of 2013."
That is what is called spotting a trend as is made evident by Tyler Durden's January 11, 2016 article, Is The Auto Loan Bubble Ready To Pop? in which he writes:
"While the media claims that this record has been reached because of drastic improvements to the US economy, they are once again failing to account for the central factor: credit expansion.
When interest rates are kept artificially low, individuals are misled into spending more than they otherwise would. In hindsight, they discover that their judgment errors wreaked havoc on their financial well-being.
This is a lesson that the country should have learned from the Subprime Crisis of 2008. Excessive credit creation led too many individuals to buy homes, build homes, and invest in the housing industry. This surge in artificial demand temporarily spiked prices, resulting in over four million foreclosed homes and the killing of over nine million US jobs."
So was Mr Durden right in his predictions? Did the auto bubble pop?
On January 12, 2016 he wrote Here's Why Automaker Stocks Are Falling (Despite The Media's Exuberance) a lesson Greensboro's leaders need to be made to understand and understand well:
"So once again - a mal-investment boom has pulled forward demand (from who knows where) and signalled entirely incorrect production expectations to executives who can only see 1 quarter ahead and the amount of buybacks they must do in order to maintain their own personal wealth."
Do those executives Mr Durden writes of remind you of anyone here locally, perhaps certain developers who are very close to members of the Greensboro City Council?
So knowing all that how can the Greensboro City Council, in good conscious, support building the Greensboro-Randolph Megasite under the guise of attracting an automaker to the Piedmont Triad? How can the Randolph County Commissioners or the cities of Asheboro, Randalman, Ramseur, Staley or Liberty join in on such a scam and look their blue collar working class in the eyes?
Oh, and here's another that while a completely different subject probably won't be reported by the News & Record being the story is about the man who owns their newspaper: 'Slumlord' Buffett's "Disturbing Business Model" To Be Probed By Feds.
"Yesterday, four members of Congress sent a joint letter to both Richard Cordray, head of the Consumer Financial Protection Bureau, and Loretta Lynch, Attorney General of the United States, demanding an investigation into predatory practices at Warren Buffett’s mobile home unit Clayton Homes."
Enjoy, spread the news and remember you read it here at EzGreensboro.com when no one else would tell you.