Auto sales in the U.S. are powering back to levels not seen since the early mid 2000’s. They are again running on a toxic fuel called sub-prime loans. New car sales are expected to be above 15 million this year, that’s 50 percent more than in 2009. In the same time-frame, originations of car loans to borrowers with bad credit have almost doubled, Citigroup said in a Sept. 6 report. Depending on which side you are, it will get better, or worse. Also, expect to sign your last bit of freedom away to get a car loan.
Standard & Poors is “expecting continued weakening in credit standards as more players vie for a piece of the sub-prime auto loan market and others try to hold on to market share.” High margins and low funding costs already attract private-equity firms such as Blackstone Group. Forbes expects Wal-Mart to be America’s biggest auto lender within the next five years. Wal-Mart already is the nation’s largest check-casher, the story points out.
To secure their loans, lenders will take measures that make today’s GPS leash look benign. The story predicts that sub-prime lenders will have real time access to payroll and cash-flow data. With “big data, neural networks and machine learning,” lenders will notice that you are broke before you do, and they will take your car away. Or rather, they will “develop a new payment plan before it’s too late. “Cars will become like utilities,” says the story, “that can be shut off if payments are too late, and without remediation plan.”
Your lender will force you to give your car to strangers, for a fee. Car-sharing platforms generate income while the car would otherwise be sitting idle. Forbes expects payments to be processed by payment platforms like Braintree (the link in Forbes goes to the wrong Braintree …) and it sees “lenders tying themselves into the payments platforms,” in order to grab the proceeds from whoring out your car before you can spend it on wine, women, and song.
“Auto lending is the new payday lending (and that’s a good thing),” promises another Forbes article by the same, not entirely disinterested author.
According to the story, we are entering a rosy future of driving from paycheck to paycheck, monitored by a private sector NSA that knows where we are, how much we spend, and how little we make, and that can turn off our car while the black tow trucks are on their way.
If that is the future of car ownership, no wonder more and more young people don’t want to be part of it. Young people have other things to worry about. Like paying off student loans, and what many call the “next sub-prime crisis.” One in seven borrowers defaulted on their federal student loans in the three years through Sept. 30, 2012. The student debt load stands at around a trillion dollars, about the same levels as sub-prime loans before the financial crisis – except that the latter had at least some equity, while student lenders usually have nothing but big hopes – and a government that will bail them out without a lot of messy debate.