Monday, November 28, 2016

"Record number of car buyers 'upside down' on trade-ins"

"The wave of easy credit and longer auto loans has left a record percentage of consumers trading in vehicles that are worth less than what they owe on their loans.

In auto finance parlance, these folks are underwater, or upside down.

Submerged, undersea, immersed, subaquatic, subaqueous, waterlogged,
submarine, under, subsurface, buried, drowned, subterranean 

...So far this year, a record 32%, or nearly one-third, of all vehicles offered for trade-ins at U.S. dealerships are in this category... When these people go to buy a new vehicle they must add the difference between their loan balance and the vehicle's value to the price of the one they want to buy.

If your car's book value is $10,000,
and you owe $15,000, you have to roll the $5,000 into the new loan,
which usually comes out to about $20 per $1,000, or another $100
on top of the payment for the desired new auto

...the lowest the underwater percentage has been was 13.9% in 2009, the depths of the Great Recession when credit was tight. The previous high was 29.2% in 2006, about when the housing market was near its frothiest point.

Like a housing top, only different

...leasing, which has reached record levels of more than 30% of all vehicle sales, has grown more popular for several years.

Already, especially in segments such as subcompact, compact and midsize cars, used car values are falling as a wave of 3-year-old models are returned by lessees. This increased supply is pushing down the price dealers are willing to pay for them at auctions.

The lower the price at auctions, 
the less a bank is going to pay for a used car trade in

Ford ...cut its forecast for 2017 pretax profits because of declining auction values for used cars.

...60-days-plus delinquencies on subprime auto loans rose to 5.05% in September, the second highest level since 2001, and 13.2% higher than a year earlier.

"When you look at recessionary levels where unemployment was near 10% in 2009 and late 2008, we touched 5.04%," said Hylton Heard, senior director at Fitch Ratings. "Today you’re pretty much at that peak."

Probably just a coincidence...

...Incentive spending in early November rose to $3,886 per vehicle, up 15% from $3,374 from November 2015 and the second-highest level ever behind the record $3,939 set in September.

"People's monthly payments are being kept very low by low interest rates that most manufacturers are willing to subsidize," said Ivan Drury, senior analyst at "But if we see those rates go up a bit, some of these people won’t be able to afford their cars."
"As older cars reign, auto parts businesses expected to benefit"

“Increasing numbers of vehicles on the road builds a new business pipeline for the aftermarket,” said Mark Seng, a director of global automotive aftermarket at IHS Markit. “A larger fleet means more vehicles that will need repair work and service in the future.”

...A report by the Automotive Aftermarket Suppliers Association earlier this month said orders from auto-parts retailers were at their “strongest reading” since July 2014."
"By infecting a Tesla owner's phone with Android malware, a car thief can hack and then steal a Tesla car, security researchers have revealed this week.

Previous attempts to hack Tesla cars attacked the vehicle's on-board software itself. This is how Chinese security researchers from Keen Lab have managed to hack a Tesla Model S last month, allowing an attacker to control a car from 12 miles away.

Security experts from Norwegian security firm Promon have taken a different approach, and instead of trying complicated attacks on the car's firmware, they have chosen to go after Tesla's Android app that many car owners use to interact with their vehicle..."