Jun

12

In January of this year Forbes published a piece by Michael Lingenheld of Cup & Handle Macro reciting the known knowns about the new car business:

1. Average duration new car loans - 5.5 years
2. Sub-prime borrowers are the debtors on roughly 1/4 of total outstanding car loans
3. Delinquencies for car loans made in 1st Qtr. 2014 as of November of that year - 2.6%
4. First year delinquencies for car loans made in 1st Qtr 2008 - 3%

IBD has a more recent story with the same "news".

ALLY, the largest auto lender in the U.S., just had its most recent flooring loan Master Trust rated Aaa by Moody's.

Russ Sears writes:

While this is true is it anything new? Aren't auto dealerships and manufacturers like farmers–prepared for a few bad years and if the cycle is deep and broad enough the Feds have a history of stepping in?

Stefan Jovanovich writes: 

The "everybody knows" history Russ refers to is remarkably short: 2009 is the one and only time auto manufacturers and auto lenders were rescued, even though the depth of the cycles in both 1919 and 1929 were far, far worse. And the difference was?

Here, for those of you who remain curious, is a brief history of GMAC (what ALLY was before its rescue):

Founded in 1919. Initial capital: $2.5M. First branches opened in New York City, Detroit, Chicago, San Francisco, and Toronto. The following year a branch was opened in Britain. By 1928 GMAC had made 4 million retail car loans. 30 years later they had made 40 million; to celebrate, they entered the home mortgage business. 1999: Record earnings, buys Bank of New York's commercial lending unit and forms Commercial Finance Group. 2001: Further record earnings: $1.8 Billion Celebrates 150 millionth car and truck loan, totaling more than $1 trillion in total financings over its history. 2002: Another record: $1.9 Billion. Now lending in 41 countries. 2003: Earns $2.8 Billion 2004: $2.9 Billion, 10th straight year of earnings growth, begins lending in China, opens GMAC Automotive Bank 2006: General Motors sell 51% to Cerberus Capital Management
Rocky and the other pros can carry it on from there.


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