# auto finance bubble



## CrackbottomLouis (May 20, 2012)

So after the thread on derivatives I started asking some family members in the auto finance industry some questions to get a better grasp on some of the subjects discussed. The discussion lead to something else as dis ussions tend to do.

My source is a close family member, smart guy, and actually owns the finance company. I know there are a lot of predictions on this site and others that spell doom but you are free to take this as you please.

Basically there is another bubble on the horizon and it is the auto finance industry. I was told the bubble should pop in about 3-5 months and is big enough to have roughly the equivalent of the 2008 recession ripple effect throughout the rest of the economy. As a point of refernce I was told bundles of 396 million dollar paper is going for as low as 388 mill. My family members company (which is a small fish in the big pond) has gone from buying a very lage amount of paper per mont to about 20% of what it usually buys.

So. I was told to prepare for another 2008 within the next year. Take it as you like all I can say is I trust the source and will be adjusting preps for an expected slide back into a recession. Hope this does not come to pass.


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## Geek999 (Jul 9, 2013)

CrackbottomLouis said:


> So after the thread on derivatives I started asking some family members in the auto finance industry some questions to get a better grasp on some of the subjects discussed. The discussion lead to something else as dis ussions tend to do.
> 
> My source is a close family member, smart guy, and actually owns the finance company. I know there are a lot of predictions on this site and others that spell doom but you are free to take this as you please.
> 
> ...


The auto finance industry works in some fashion like the mortgage industry but is nowhere near as large. There were also a lot of bad auto loans in 2008, but they were dwarfed by the mortgage fiasco. Auto finance has gotten easier of late, so to that extent some concern is legitimate. 0% loans are more about moving cars than about finance and there will be some bad loans in the mix.

Another factor is it is much easier to repossess a car than it is to foreclose on a house, limiting the losses to those holding the paper. Overall I would say that he is correct that there could be a problem with auto finance and wrong that it could be anywhere near the scale of the 2008 crisis if that is the only thing going on. For instance, banks won't be failing in significant numbers due to auto loans.

Auto companies would see reduced sales if their financing is curtailed so I'd say if you really believe this you should short Government Motors. Personally, I am not going to make that bet.

Another possibility is if you are in the market for a new car and prepared to pay cash, wait for the problem to manifest itself. If you want to finance a new car do it before the financing deals go away.

That's an interesting prediction. We should revisit it around Labor Day and again at Thanksgiving to see how it panned out.


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## JayJay (Nov 23, 2010)

"""Another factor is it is much easier to repossess a car than it is to foreclose on a house"""

I feel this is a great time to share this:

http://www.zerohedge.com/news/2014-05-16/where-worlds-unsold-cars-go-die

Where the World's Unsold Cars Go To Die

Interesting article--be sure to take notice of the pictures--there are thousands of these lots around the world.


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## CrackbottomLouis (May 20, 2012)

Yeah. I certainly hope it isnt on that scale. He did seem pretty certain it would have a larger impact than people may think due to the large amount of money being poured into the industry. I guess we will see.


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## Geek999 (Jul 9, 2013)

JayJay said:


> """Another factor is it is much easier to repossess a car than it is to foreclose on a house"""
> 
> I feel this is a great time to share this:
> 
> ...


But those are mostly British cars.


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## AdmiralD7S (Dec 6, 2012)

JayJay said:


> """Another factor is it is much easier to repossess a car than it is to foreclose on a house"""
> 
> I feel this is a great time to share this:
> 
> ...


Agreed it's interesting, but only for the pictures. The author's only verifiable facts are that there are lots of what appear to be new cars sitting in rows. The commentary, from my point of view, is merely speculative with respect to why the cars are there. Maybe factories turn them out in "clumps" and then they arrange a fleet of car-haulers to take them away. Maybe they're awaiting the arrival of a cargo ship.

The authors says there are thousands of these places across the world, but no info on his supporting evidence.

I also noticed the author's language is geared towards making you think that the cars are abandoned and falling into disrepair. While he is technically correct about the maintenance issues of idle vehicles, it's not as big an issue with news cars. I certainly could believe that a month on a lot isn't significant to the vehicles.

So, yes, a curious article, but nothing that I'm taking seriously unless/until there's much more information available.


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## TheLazyL (Jun 5, 2012)

Do I understand the article correctly?

Automotive Manufacturers are building vehicles that they can't sale. So they invest more money to rent/purchase lots to store the unsold vehicles. And instead of cutting back on production they just continue to build more vehicles, that aren't sold and are stored on more lots?

I don't believe it.

When you invest capital in a product, you either need to sell that product at a profit or have a rich Uncle with deep pockets. Otherwise you will go broke real quick.


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## JayJay (Nov 23, 2010)

TheLazyL said:


> Do I understand the article correctly?
> 
> Automotive Manufacturers are building vehicles that they can't sale. So they invest more money to rent/purchase lots to store the unsold vehicles. And instead of cutting back on production they just continue to build more vehicles, that aren't sold and are stored on more lots?
> 
> ...


You get it. Is this ludicrous, or what?
But, if 'they' stop manufacturing, the entire car industry and all associated with it will cause the nation's economy to plunge so far, an economic collapse might occur??? 
I told Gene, next??? Garages to store cars not sold---several levels high??


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## sailaway (Mar 12, 2009)

I sell bearings that go into the press industry, I would be directly affected. I do believe all of those unsold cars are out there though. Unfortunately I didn't realize it until this thread.

Another industry with a lot of excess capacity is the travel trailer industry, I see them sitting everywhere. Who can afford a new one other than maybe FEMA for their camps. If these two industries go down there would be a lot of excess stel mfg. capacity.

Interesting that the steel mills in the USA have been mostly been bought up by over seas concerns, they have the ability to close them and move them or just limit production and drive prices up. They have become a global trust of sorts. 

I would imagine the car component mfgers. all have some ownership in the various brands. Also interesting to point out is that the Chineese instead of taking our $s have taken 400 acres of land along the Maumee River in Toledo, Oh. They will probably be puting in a duty free zone port to unload Jeep parts for the local Jeep assembly plant. Just my .02, Sail


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## Woody (Nov 11, 2008)

Even with my tin foil hat on as tight as usual, I'm finding these are abandon pretty hard to rationalize. 

30 or so years ago I went to Seattle, to visit my brother and his young family. We took one day and he drove me around to show me the area. We had already hit Pikes Place Market!!! TIP: Bring money, an appetite and plan to spend the day.

We went to one of the ports where a college buddy of his was a manager or something. We got an overhead view of the operation, fascinating trip. HUGE stockpiles of containers. Some coming, some going, some just piled up but a massive amount of them 'just sitting around'. These were in process of waiting for a ship to be loaded, just coming in from a ship or waiting for transport to their final destination. There were also huge lots of vehicles, we are talking just like the pictures. I remember being told that there were a lot more 'storage' lots away from the port itself. Storage right there was expensive so anything that was going to be around for more than a short time went there. This included containers as well as vehicles. I don't remember how long a time they would be stored before transport to their final destination.

Yes, some containers came right off the boat and loaded onto the long line of trucks waiting in line, these were perishables. Others needed to wait for customs, contracts, a destination or something. The total amount of product being loaded and unloaded was unbelievable, so lots of storage for it would be required. I can see where they would have at least one, if not two or three ships worth of product (vehicles) waiting to be loaded. It goes that there would be a few ships worth of vehicles that were unloaded and waiting to be transported somewhere.


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## labotomi (Feb 14, 2010)

sailaway said:


> Interesting that the steel mills in the USA have been mostly been bought up by over seas concerns, they have the ability to close them and move them or just limit production and drive prices up. They have become a global trust of sorts.


I will go on the record and say that this is absolutely not true. There are too many players in the industry and way too much idle capacity for this to be remotely possible.


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## millertimedoneright (May 13, 2013)

I work in the towing industry and have first hand experience around ports and containers. Just like you said many many of these things sit idle for long long times before being sent on their way. I have seen containers sit for well over a year. 


Sent from my iPhone using Survival Forum


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## LincTex (Apr 1, 2011)

labotomi said:


> I will go on the record and say that this is absolutely not true. There are too many players in the industry and way too much idle capacity for this to be remotely possible.


I read an article in a "Steel Industry Specific" magazine a few years ago (I don't remember the name), and the article said said so much capacity has been shut down due to age, foreign competition and the EPA that it is now 100% impossible to do all the melt that the United States needs for our industry, and that if we were ever in another large war we would be in big trouble due to loss of mill capacity.


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## labotomi (Feb 14, 2010)

LincTex said:


> I read an article in a "Steel Industry Specific" magazine a few years ago (I don't remember the name), and the article said said so much capacity has been shut down due to age, foreign competition and the EPA that it is now 100% impossible to do all the melt that the United States needs for our industry, and that if we were ever in another large war we would be in big trouble due to loss of mill capacity.


It's rare that US Mills run at 100‰ capacity due to imported steel. It only happens in booming market times such as early 2008. Prices were high because demand was high. In normal to bust times the supply capacity greatly outweighs demand.

If a foreign company tried to shut down their capacity to drive up prices the void could easily be filled by another company by ramping up their production.

Talking about a wartime scenario is iffy. A war such as Iraq/Afghanistan could be supplied by domestic production. One such as WW2 could not.


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## tsrwivey (Dec 31, 2010)

CrackbottomLouis said:


> So. I was told to prepare for another 2008 within the next year. Take it as you like all I can say is I trust the source and will be adjusting preps for an expected slide back into a recession. Hope this does not come to pass.


Me too! We need a little time to lick our financial wounds after our daughter's wedding last weekend. 

On the flip side, I may need to replace my Tahoe if we can't get the AC in it to work right so an abundance of automotive bargains could be a good thing for me :2thumb:


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