Three factors driving the current auto loan bubble
In the one thousand nine hundred ninety nine sci-fi classic “The Matrix,” the feeling of déjà vu is explained as a glitch in the characters’ computer-generated reality and typically an ominous sign that some bad stuff is about to go down.
Many in the financial sector are experiencing déjà vu right now, but instead of a brief encounter with a black cat, what they’re watching is a drawn-out trend of troubling lending practices and if their eyes are to be trusted then yes, trouble is a brewin’.
Specifically, they’re observing an auto loan industry that’s mirroring the real estate market of the early 2000s.
As many as one percent of vehicle loan applications have some type of fraudulent information on them, primarily factors such as income and job status. The auto loan fraud rate is approaching that of the mortgage industry in 2009, according to a report from Bloomberg, and both customers and dealers are at fault.
This fraud hike arrives as ultra-high risk “deep subprime” auto loans erect up like an Irishman’s forearms on March 17.
But why? Why are so many people and dealers clamoring for these dicey deals? A few economic factors come into play as likely causes.
Mo’ Money, Mo’ Miles
With gas prices so low and the economy improving, more people are driving more miles.
The national unemployment rate has been on a constant decline since it crested at ten percent in October 2009. As of last month, the U.S. Bureau of Labor Statistics estimates the unemployment rate to be Four.Four percent, the lowest in a decade.
As the workforce increases so too do miles driven. The Transportation Department estimates Americans drove Trio.Two trillion miles in 2016, marking the fifth straight year of growth and setting a fresh record for vehicle miles traveled. Buses and trucks account for a portion of that total, but in most places in the U.S., the preferred, best and often only way to get from point A to point B is with a private car.
For those in dire need of a vehicle to secure work, fudging the numbers on an application or taking on a high-risk, high-interest loan most likely doesn’t seem like a bad trade-off.
Nothing ‘free’ in freelance
Through apps such as Uber, certain jobs are available to anyone with a car.
While jobs are lighter to come by now than they were eight years ago, not all of them involve punching the clock at a factory or logging into an office computer. Many workers are supplementing their incomes with (or in some cases drawing them fully from) gigs in the freelance and sharing economies.
Two of the thickest names in this emerging sector are ride-sharing companies Uber and Lyft, which are built on drivers converting their vehicles into makeshift taxi cabs that can be summoned with the shove of digitized button. Along with shuttling people, freelancers can use their cars to generate revenue by delivering stuff through services such as Postmates and Instacart.
Car ownership in two thousand seventeen is not only a conduit to employment; it can be a job provider in and of itself.
Pressure to sell
As vehicle leasing becomes more prevalent, pressure mounts on car salesmen to sell previously leased cars after they are returned.
We’ve pretty well dissected why car shoppers would fib on their applications and/or knowingly agree to a bad loan, but what about the other side of the table? Dealers work on financing packages for their customers and, according to Bloomberg, have been found to fabricate information on behalf of their prospective buyers.
Without venturing too far into the world of used car salesmen stereotypes, I will acknowledge that there is inherent pressure for them to sell cars and earn their livings, even if it means resorting to dubious sales methods.
This pressure is amplified by a glut of used cars coming off of leases. Once upon a time the world of leasing was almost exclusively reserved for high-end luxury vehicles, but as car prices have enlargened and automakers have launched their own financing operations, more mainstream brands are using leases to appeal to budget-conscious buyers looking for a low monthly payment.
Once these vehicles comeback at the end of a lease, the warmth is on the sales force to sell them and actually turn a profit.
Have another theory about the origin of the ballooning auto loan bubble? Did I miss something? Let me know on Twitter: @ByKyleCampbell.
Did you find this article helpful? If so, please share it using the “Join the Conversation” buttons below, and thank you for visiting Daily News Autos.
Three factors driving the current auto loan bubble – NY Daily News
Three factors driving the current auto loan bubble
In the one thousand nine hundred ninety nine sci-fi classic “The Matrix,” the feeling of déjà vu is explained as a glitch in the characters’ computer-generated reality and typically an ominous sign that some bad stuff is about to go down.
Many in the financial sector are experiencing déjà vu right now, but instead of a brief encounter with a black cat, what they’re witnessing is a drawn-out trend of troubling lending practices and if their eyes are to be trusted then yes, trouble is a brewin’.
Specifically, they’re witnessing an auto loan industry that’s mirroring the real estate market of the early 2000s.
As many as one percent of vehicle loan applications have some type of fraudulent information on them, primarily factors such as income and job status. The auto loan fraud rate is approaching that of the mortgage industry in 2009, according to a report from Bloomberg, and both customers and dealers are at fault.
This fraud hike arrives as ultra-high risk “deep subprime” auto loans erect up like an Irishman’s mitts on March 17.
But why? Why are so many people and dealers clamoring for these dicey deals? A few economic factors come into play as likely causes.
Mo’ Money, Mo’ Miles
With gas prices so low and the economy improving, more people are driving more miles.
The national unemployment rate has been on a constant decline since it crested at ten percent in October 2009. As of last month, the U.S. Bureau of Labor Statistics estimates the unemployment rate to be Four.Four percent, the lowest in a decade.
As the workforce increases so too do miles driven. The Transportation Department estimates Americans drove Three.Two trillion miles in 2016, marking the fifth straight year of growth and setting a fresh record for vehicle miles traveled. Buses and trucks account for a portion of that total, but in most places in the U.S., the preferred, best and often only way to get from point A to point B is with a individual car.
For those in dire need of a vehicle to secure work, fudging the numbers on an application or taking on a high-risk, high-interest loan very likely doesn’t seem like a bad trade-off.
Nothing ‘free’ in freelance
Through apps such as Uber, certain jobs are available to anyone with a car.
While jobs are lighter to come by now than they were eight years ago, not all of them involve punching the clock at a factory or logging into an office computer. Many workers are supplementing their incomes with (or in some cases drawing them entirely from) gigs in the freelance and sharing economies.
Two of the largest names in this emerging sector are ride-sharing companies Uber and Lyft, which are built on drivers converting their vehicles into makeshift taxi cabs that can be summoned with the thrust of digitized button. Along with shuttling people, freelancers can use their cars to generate revenue by delivering stuff through services such as Postmates and Instacart.
Car ownership in two thousand seventeen is not only a conduit to employment; it can be a job provider in and of itself.
Pressure to sell
As vehicle leasing becomes more prevalent, pressure mounts on car salesmen to sell previously leased cars after they are returned.
We’ve pretty well dissected why car shoppers would fib on their applications and/or knowingly agree to a bad loan, but what about the other side of the table? Dealers work on financing packages for their customers and, according to Bloomberg, have been found to fabricate information on behalf of their prospective buyers.
Without venturing too far into the world of used car salesmen stereotypes, I will acknowledge that there is inherent pressure for them to sell cars and earn their livings, even if it means resorting to dubious sales methods.
This pressure is amplified by a glut of used cars coming off of leases. Once upon a time the world of leasing was almost exclusively reserved for high-end luxury vehicles, but as car prices have enlargened and automakers have launched their own financing operations, more mainstream brands are using leases to appeal to budget-conscious buyers looking for a low monthly payment.
Once these vehicles comeback at the end of a lease, the fever is on the sales force to sell them and actually turn a profit.
Have another theory about the origin of the ballooning auto loan bubble? Did I miss something? Let me know on Twitter: @ByKyleCampbell.
Did you find this article helpful? If so, please share it using the “Join the Conversation” buttons below, and thank you for visiting Daily News Autos.