As a new year is just around the corner, it's worth wondering if next year will be any better for motoring than 2015. Certainly for the VW group, things couldn't get much worse. But for car manufacturers in general, especially here in the US, things are looking positively rosy.
In the last quarter of 2015, US manufacturers are enjoying some of their best sales in years. It's all evidence of the economic recovery and the halcyon days of car sales. Right? I mean that's what we're told.
Sadly, not so much. The reason the sales numbers are through the roof is because the rate of subprime car loans has shot up. Remember subprime? It's what wrought economic destruction in the housing market a couple of years ago and pushed the US into a recession. Seems the banks don't learn though. Towards the end of 2015, 75% of car loans were made to people with a credit score of less than 600. And when I say 'less than 600', realise that 20% of those loans that were handed out went to buyers with credit scores between 351 and 500.
To put that into perspective, a score of 620 is generally considered to be "unlikely to repay loan". Lenders used to start lending at a score of 630.
More interestingly, 14% of loans were made to people who had no credit score at all. As Zerohedge writes: In order to keep the US car sales miracle alive and thus perpetuate the ridiculous myth of an American auto renaissance, lenders will need to continue to lower their underwriting standards. After all, the pool of creditworthy borrowers is finite and so in order to expand it, you need to make inelligible borrowers eligible and that means the proliferation of subprime lending.
If you have a car and it's paid off, good on you - you're wise and in a financial situation that allowed you to do that. If you're paying off a car loan, also good. But - if you're a deadbeat with no hope of paying off a McDonald's happy meal, please don't contribute to the subprime car loan bubble - it's going to affect everyone when it bursts and the less you contribute, the better. Trust me - you don't need a new car - a good mechanic can make sure your existing ride is safe and roadworthy for a lot less than a car loan.
Have a happy new year and be sensible with your money - please ....