Auto-Loan Bubble on the Way?

This transcript is automatically generated

Looking up potential economic bubbles that could be ready to pop.

-- the auto industry that.

It's obviously recovering after -- the recession but the big question is.

Isn't going to be trouble down the road joining us -- just -- a -- he's the editor of capital away forecast to show you wrote a piece a couple of weeks ago.

The way -- read into it was that this is an emerging bubble that no.

Once talking about auto loans that's who I feel about -- A lot of folks are not talking about the fact that sub prime lending on auto loans for both new and used originations is increasing.

It's up 60% in 2010 over 2009.

And actual total numbers are increasing to about 38% of total loan volume for -- We saw a lot of these couple auto companies have giving out incentives basically doing everything they can't push their cars off the lot so it wouldn't be surprising.

That -- -- they were giving out loans.

It's not so much of the auto companies are giving out loans is the finance companies in the banks that are offering loans.

There's not a lot of loan demand out there are so they're going where they can and the auto loan sector is -- really enable a place they can push.

They're enabling the auto loan companies actually and that auto finance companies to do this banks are by competing with them so.

There -- -- going up against each other and are competing for the consumers in the -- their standards to do it.

So I read your piece and their right after that dealer track woods is a publicly traded company 171000.

Dealers in -- retail space.

Come out they came out of this incredible earnings the CEO -- it's -- blew me away.

He said he saw a significant increase for overall business particularly though in sub prime lending.

That's a red flag that -- that you know what we're talking about is essentially.

Banks are making these loans that got him in trouble in the first place and that's what I don't pay board that taxpayer.

That's exact what's happened to -- is exactly the same thing that happened in the mortgage debacle if you well.

The banks are lending -- battle over backward bending over backwards to land and older to basically finance auto sales.

The auto companies love that obviously they wanna make the -- so without that sort of late in the game stop and as long as they're continuing to feed the sub prime -- if you will.

So lenders gonna back up just like -- -- -- Mortgages so why are we seeing this happen again are they if they're not as much scrutiny on auto loans -- there on mortgages we know that you know the rules for mortgages have been anti up at least supposedly they had 20% down and so forth.

The -- and she's not getting much attention so they're able to overseas auto loans through.

Dodd-Frank wasn't there's heavy handed with the auto loans as a was with mortgage business.

So that's certainly that kind of -- under the radar there may -- some changes coming along the -- but really comes down to banks have a lot of money finance companies have a lot of money.

Deposits are pouring into banks the cost of money to institutions is next to nothing so in order to lend at a spread they -- -- go sub prime an increase that spread.

Hey you know let's I wanna be a little politically because you just mentioned Dodd-Frank -- just a little -- And -- -- also be that the Obama administration is really.

Made a huge bet on auto -- auto industry coming back.

So banks -- maybe have this implicit or.

Some sort of wink and a nod that if you do get in trouble don't worry about it -- long that's -- auto loans we've we've gotten about.

That may be very interesting points on the have to look at it that way etc.

let you know like your twist on -- I don't know its financial.

Like I like that I haven't thought about that but you know you have a point there is something to be said about the fact administration has backed the auto industry.

There's a de facto guarantee that it's there to -- stop so you you have a very valid point.

How that -- nine and conspirator Terry angle and -- it's less money leanings.

Break you know I think what I think -- give money to the subprime borrower could be 3040000.

It's not 250000.

That I would have to loan for home.

Well that's true another thing other aspect of the loans to some crimes in terms of cars is.

Secondary prizes for use autos have been rising.

So that allows lenders to say if we have to repossess the car we're looking a little better because our collateral is actually writer in the future and as these as far as they see it.

And that's allowing them to actually go out there and then go -- the further out on the branch.

Let me let me -- -- -- a little bit because we covered all kinds of bubbles this week.

Student loans at the at all you know we saw at -- yesterday lot of people saying is -- tech bubble.

Well how do you feel in general about the notion that we have really been a bubble nation for a couple of decades now whether it was baseball card stocks are realistic.

I think more so than ever I think that's actually true that we have -- -- we are -- bubble nation.

But police believe all of the need to have money that's come into the system liquidity he's been added into the system has created a lot of bubbles -- and -- ending.

There's no escaping it when there's more money chasing fewer goods and services you're gonna have bubbles.

But above all been embarrassed when Amy -- -- about -- used car market.

Eventually be used car market is gonna have issues because when I use -- -- as much as my new car I'm not going to be used car market anymore.

So maybe if it does not going to be there much longer for those banks.

This sentence will be there as long as the banks have money as long as you're making significant enough spread over their borrowing costs -- the secondary market won't be there right the secondary market eventually going to weaken because obviously you folks you know to have trouble with the economy right dips further.

We've seen a little bit of a dip in the first quarter from the fourth quarter if that perhaps continues a lot of those folks who actually struts themselves out there to get these loans.

Can't make payments they're going to be probably going to be giving up cars are gonna come back and secondary and use market.

We've got less than thirty seconds but I got to tell you look -- -- I -- -- live in Miami so.

Yeah and maybe not our even -- you wrote this piece doesn't look like you losing sleep over how dangerous is this problem.

It's not an immediate threat I think I call as far as your your bubble pieces -- wants mother terrific I call this sort of a hissing sound I think that this bubble is going to deflate.

Little bit slower than we would expect in terms of a pop but I think it's gonna happen I don't know -- timeframe wise that maybe give it twelve months eighteen months we're gonna start seeing the effects -- that long.

All right thanks a lot great information great piece really appreciate -- seeing a person thank dog I --

Watch Live

Auto-Loan Bubble on the Way?

Details

Clips

Latest Video

Is Hewlett-Packard Tech’s Comeback Kid?

Is Gov't Going Too Far in Collecting Information?

Alberto Gonzales on the IRS Scandal

Special Prosecutor Likely in IRS Investigation?

Few Questions Answered in IRS Hearing?

IRS’ Lois Lerner Refuses to Testify

President to Blame for IRS Scandal?

‘Gang of 8’ Immigration Bill Heads to Senate

What’s the Best Airline for Your Next Trip?

Will IRS Scandal Mean Fewer Audits?

Is Your Health Insurer Watching You?

How Much Do Retailers Know About You?

Transcript

Recommended