I know people who are having difficulty getting small loans and lines of credit for their businesses with what used to be excellent credit. They have to shop around quite a bit to finally find someone willing at a fairly ridiculous terms. My young nephew, on the other hand, who I know has extremely spotty credit, was delighted to learn that he could get excellent terms on the new Ford Escape Hybrid he drove off the lot in October. He makes next to nothing, barely $13 an hour, has a wife and new baby and couldn't really afford it -- but it was there, doncha know, all shiny and new, with accommodaters showing him where to do the easy signing and all, and the temptation to jump on it was just too great.
Kind of disappointed that an intelligent contrarian such as yourself in a subforum on "Sound Money" economics can miss the "more gas on the same kind of fire" genesis of this so-called "recovery" -- which I call, "more blood squeezed from a different part of the same turnip".Credit-Fueled U.S. Car Sales May Need Help From Incomes [SOURCE]
A rebound in U.S. auto sales has been buoyed by the return of easy lending, even to borrowers with flawed credit histories. Some economists question whether the gains can be sustained without a boost in hiring.
Auto loans were up 5.5 percent in the second quarter from the same time last year, with riskier buyers accounting for 43.9 percent of the total, up from 42 percent in 2008, according to Experian Plc. (EXPN) By contrast, hourly wages for non-managers climbed 1.1 percent on average over the past 12 months, the least since records began in 1965, Labor Department figures show.
The financing spigot opened as Federal Reserve efforts to keep interest rates low prompted investors to pour money into securities backed by subprime car loans in search of higher returns, giving the auto industry and the economic expansion a lift. That may no longer be enough to fuel purchases as wages are held back by a pool of 12.3 million unemployed Americans.
“If you want to take it to another level of sales, you want to see more of the fundamental drivers of consumption improve more materially, things like income and employment,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York, the bank with the third-best forecasts for consumer spending, according to Bloomberg calculations. “With credit flowing again to subprime, you’ve had the wherewithal to bridge that gap to execute on pent-up demand. That takes you only so far.”
What happens when average people like my nephew get hit by so many rising costs of everything-but-their-wages, and find themselves upside down" with their car 'mortgages'? And what about that car that depreciates substantially in value the moment it was driven off the lot? Who does a face-plant then? I foresee (and predict) a buying opportunity for a glut of really nice used cars in the not-too distant future. And what about the lending warehouses? Will the Fed have another special round of QE to buy up all that toxic debt as well?
BUT WAIT, THERE'S MORE! This just in from credit.com:
Why are car loans so easy to get?
You will have trouble getting a mortgage or personal loan if you have bad credit. But can you get a car loan? You bet.
If you've had trouble getting approved for a mortgage, a credit card or a personal loan recently because your credit isn't up to par, you aren't alone. We get readers writing to us often in our Credit.com Forum about their trouble getting access to credit. But one type of loan is open to nonprime consumers -- auto loans.
The most recent Experian-Oliver Wyman Market Intelligence report found that even consumers with the worst Vantage scores -- F-level borrowers -- are getting access to auto loans with an average balance of $15,300. Auto loan originations have been on the rise for the past few years, according to the report.
So what makes these financial products so readily available to consumers with credit scores that aren't among the elite? Alan Ikemura, senior product manager of Experian Decision Sciences, says auto loans have always been a credit product that is more open to subprime borrowers.
"Auto originations have really been a different product than the real-estate type of product or even bank card products," Ikemura says. "It's not a new phenomenon that creditors are lending to lower tiers, except now you're starting to see more of that."
The key to auto loans' wide availability is one simple reality of cars -- they can be repossessed.
Read more here...