Is subprime auto lending a bubble waiting to pop? It’s a question so redundant, even John Oliver, host of HBO’s Last Week Tonight, tackled the subject.
In a segment posted to YouTube yesterday, Oliver criticized the high risk often involved in subprime auto lending. The majority of Americans — 86% — commute to work via automobiles, he said, before delving into subprime auto loans, which, according to him, making up nearly a quarter of all auto loans.
The average interest rate in a buy-here, pay-here lot is 19%, he said, and can go as high as 29%. This means an auto asset worth $3,000 can be financed for a final total of $13,000, more than four times the actual value of the asset.
Additionally, Oliver comically recounted the life of a used vehicle on a three-year time span, showing how some vehicles can be financed, repossessed, and resold to another borrower in a process repeating as many as eight times in three years.
Lastly, Oliver introduced the economic worry that auto finance could be facing a subprime bubble, but assuaged these woes by putting the auto finance industry in context. Representing only a portion of the U.S. economy, the potential economic fallout of a major subprime auto lending downturn would be much smaller than what we saw happen to the U.S. economy when affected by the mortgage crisis. The show wraps up with a hyperbolic parody of archetypal cowboy-salesmanship, dancing on straddled legs as each deal increases risk to ridiculous levels.
Enjoy the show.
