Peep this chart, bruh:
The chart above shows the $ value of American auto loans that are past due (outstanding) 30-89 days. As you can see, approximately 7.5 BILLION Dollars worth of American auto loans were past due 30-89 days by the end of 2015. Not only is that OUTTA CONTROL in terms of $7BN being a YUGE number, but also the $ value of auto loans outstanding has steadily increased over the past 5 years. NOT GOOD.
As many of you may know, a key systemic trigger of the 2008 Financial Crisis was “sub-prime mortgage loans”. The most simple representation of the “sub-prime mortgae loan crisis” went down as follows:
- The Government wanted the “American Dream” to be defined by home-ownership. As a result, the US Government implemented laws and regulations that made it easier for individuals with weaker credit to access loans to “own homes”.
- Banks experienced an unreal amount of loan requests (business started booming).
- Banks need Rating Agencies to tell them the credit-worthiness of their borrowers. If a Rating Agency deems a borrower legit, they got a solid rating and a loan. Banks paid Rating Agencies for their services.
- Rating Agencies gave artificial ratings to borrowers in order to generate continued exponential business growth and make their customers (banks) happy.
- Banks turned a blind eye and believed rating agencies / “financial reports” they were reading.
- No one realized that barely anyone could afford their loans until there were foreclosures up the wazooo and some of the largest financial institutions in the history of mankind (Lehman Brothers, Bear Stearns) crumbled to pieces.
A sign of the impending mortgage crisis was increased outstanding loans. Slowly but steadily, Americans were unable to pay the loans they eagerly signed up for. The chart above shows that the same type of phenomenon just may be unfolding in the auto sector.
Thankfully, the auto sector may not have the same MEGA-SYSTEMIC impact on the economy that real estate did. But nonetheless, this could be trouble.