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I am doing okay. Pops, how are you doing this morning? Excited to be here with you. And our community to talk a little bit about what's going on at Wells Fargo. And we'll see you in the next video.
And Edmonds, we're not even going to do the promo. We're just going to jump right into it. Dad, Wells Fargo, they are doing something a little bit on the crazy side, at least as far as we're concerned, pulled up right there on the screen from Card Dealership Guy Dad. Let me read this out and then we need your take. And then we're going to talk about the Edmonds data. It is also pretty dog on scary. Wells Fargo is pushing deeper into riskier auto loads. An internal memo obtained by CDG News shows the bank's dealer pilot program will now approve borrowers with
greater than 500 greater or equal to 540 add up to 150% low into value ratio. We're actually going to pause right there. Can you please explain to me why that one line in this tweet gives me the confidence to say Wells Fargo just ring the auto industry alarm bell.
Sure, if you have a credit score that's equal to or slightly better than 540, which ladies and gentlemen is subprime territory.
There is no way in hell you should be getting an automobile loan of up to 150% of the loan to value ratio of that vehicle now what is loan to value ratio.
Let's say the vehicle has a value of $10,000. Well, the bank would finance up to $15,000 on that $10,000 valued vehicle, meaning that well, $5,000 worth of the $15,000 loan is secured by nothing but the air that we breathe.
Okay, so why could that possibly be risky when you're willing to do that for people who have shown a propensity in the past to not handle their credit obligations in a timely manner.
And we know Wells Fargo dad their originations have been surging. This is the data that we have from their most recent quarterly earnings Wells Fargo autos originations are increased have increased 87% year over year.
So this begs the question pop yes, why is Wells Fargo here? I'll pull it up from Orange River Ducky. Interesting. Why would a business want to get into riskier things what what's what's driving this. It's also coming on the heels of we talked about Ford earlier in the week doing more subprime lending.
Like why are the why are we seeing more of these companies get into riskier and riskier things here just to flash forward lowers F 150 rates for subprime buyers.
Like all of this is about getting more subprime customers. Why are they doing this to give the appearance that they will end up being more profitable when in all likelihood it will have the opposite outcome.
Yes, you can you can say we've increased our loans by 85 87% year over year in order to do that we had to give loans of up to 150% of the loan to value ratio on a vehicle to people who normally would not qualify.
Well, that's just what's the phrase kicking the can down the road that's just pretending that you're entering into a contract that should have a profitable conclusion when you know more than likely it will not.
Do you agree with this comment 2008 2.0 let's go 150% by the way loan to value ratio is absolutely nuts regardless of your credit history to your point earlier with the example so do you think this is 2008 2.0 but for the auto industry this time obviously not the housing housing side.
It certainly seems like it and if there is a collapse in the automotive finance market it is significantly different than when we had that collapse in the mortgage market the reason for that is mortgages I believe account for like 13.2 trillion dollars something like that.
And auto loans account for like 2 trillion dollars so even though trillions sound like a lot and I'm pretty sure they are especially when well like I'm I'm proud to admit I'm a thousand year you know so so trillions are a lot but it is.
I don't I shouldn't say but it's small potatoes to trillion small potatoes in comparison to 13 trillion so if there is a collapse in automotive finance it won't have as large an impact on the overall financial market as the mortgage collapse did sure the magnitudes of scale here are different maybe six times greater is the mortgage that component than the auto.
But the principles of what's that feel eerily similar from 2008 to right now again the big story this morning Wells Fargo coming out a new internal memo has been obtained and shared if you have a fight go auto score greater than 540 you can get a proof for an auto loan at 150% loan to value now if you're at the 500 to 539 range you can only get up to 110% LTV that's also cake crazy that that's also crazy that means.
I mean 500 to 539 fight go score means you have demonstrated consistently an inability to make good on your credit obligations a 100 plus percent loan to value ratio means you are driving off the lot in negative equity.
You are not putting a down payment down enough you are bringing negative equity already to the table like that is scary very scary which is the same thing you've always said it if you could
fog a mirror back in 08 you get a proof for a mortgage principles wise magnitudes a scale different for principles wise this is the same thing happening all over again forward in the news for it recently Carvana's been in the news for it as well and now we have Wells Fargo yet another and we haven't even talked about the Edmunds data yet but yet another example of the auto market credit chaos.
Let's talk about credit okay and and how credit has normally been thought of by the others okay there's basically three parts there's ability stability and willing so what do I mean by that ability does one have the ability based on income and other factors to be able to pay back the loan okay so you know do you aren't
enough money whether it be through investments or through your job but do you actually have the ability to pay back the loan stability well what are they looking for when they're looking for stability well how long have you been working in the field in which you are employed how long have you
been at your current employer are you a job hopper have you been at your current employer for 10 years in all likelihood that you will continue to be there that that's stability how long have you lived at your current
dress things of that nature and then willingness what do they mean when they say willingness well the willingness is how have you handled your previous
credit obligations have you handled them in a timely manner have you handled them well enough to qualify for future credit now in my day in the auto industry on the retail side of things if you had less than stellar credit
and trust me anything from 500 and up to 540 or 5 you know anything below 600 was well not considered stellar credit even the subprime lenders would look at a customer like that and say we will finance 80% of the loan
to value ratio 90% whatever it was they wanted to see participation from the customer what do I mean by participation cash or trade equity down they wanted to see that the customer had an
investment in this so that it would encourage them to make the payments some skin in the game yeah yes and and so if you're going to take
somebody whose credit scores between 500 and 539 and and say yeah we're willing to advance more than we're willing to advance 10% above the value of the vehicle that's not skin in the
game that's not that's not enough participation so that you basically know that when as a lender when you're doing this you are setting these customers up to fail you know it's going to happen but you
also know in the short term it is going to improve the look of your balance sheet until I don't know a year from now two years from now when we look back at your 2025 portfolio and it's not performing at the level that it that you
thought it should or your investors thought it should that all you got to do is a quick Google search of auto loan delinquencies the first article right here from
Reuters US auto bankruptcy show rising credit pain and low income households we have the highest rate of auto loan delinquencies right now that we have ever had in the United States of America and it is most pronounced amongst those with
subprime credit and at the same exact time again I'm just going to run back through it the recent stories from the past week or two for
to lowers F-150 interest rates for subprime buyers to boost sales while street journal reports an internal memo obtained by CDG news shows the
bank this being Wells Fargo piloting a dealer program that will now approve borrowers with a pico of 540 or greater add up to 150% of low
value ratio and borrowers with a pico of 500 of 539 add up to 110% loan to value ratio in the same breath Edmunds dad just put out the latest data on what's the state of the auto
finance market and I want to share this information with you here because it really puts a bow on all of this new car buyers are stretching further than ever to make their monthly payments work this
again is some commentary from CDG in Q3 the average new car down payment fell to $6,020 the lowest level in nearly four years the average amount finance went up to 42,647 dollars 20% of buyers are taking on
a thousand dollar a month or more payments and 22% of auto loans now stretch for seven years are longer this is like we haven't even gone into the loan loss provisions data that car
max just most recently put out which was a massive increase in the amount of money that they're setting aside for auto loans they wrote that they don't think are going to come good
we got the information from Carvana you make a hundred bucks a week they'll prove you for an auto what type of despair could that spell for the auto industry and for consumer like you do not have to be that bright of a bowl to see how messy the current affordability crisis is and then these depths that these finance companies are going to ultimately keep the merry go around going around ring swing by swing by swing I don't think the bulb has to lighten off for you to realize that this isn't this isn't
something that's sustainable it is it is it is indentured slavery to a degree to these poor people that have not handled their credit well in the past to subject them to
the unreasonable amount of loan to you know you use the word before it's enablement that it's the banks are enablers the complicit or complicit yeah okay they are complicit in this indentured slavery where they were basically where they're
and she'll slavery dad I don't know where they're taking these people that don't know how or have not shown a propensity to understand credit in the past and bury them deeper and deeper into debt in such a way that they will never ever ever get out of it
and and so banks are complicit in this in in not only encouraging it to happen but gleefully participating in making it happen the dealerships they're they're ecstatic about it because it's like well we we didn't know how we're going to get these people financed but hey Wells Fargo came to the rescue it it is we are
artificially moving metal to prop up an economy that is probably in in more desperate shape than we would like to ever admit yeah okay you can if this can't go on forever it just cannot
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it that the signs just within auto are insanely damning you have prices of vehicles through the roof
we are starting to finally see a little bit which i think is influencing why we're seeing these
manufacturers captive finance companies and independent financing companies like Wells Fargo
start to do this more aggressive lending is we actually are starting to finally see some pullback
from consumers because for a long time there they're still been demanded high prices but we've seen prices
go sky high finally sales are slowing down inventory started to build up i flash that data yesterday use car
inventories up year over year new car inventories up year over year so there's more cars and there's not enough
customers how do you get more customers you start approving more reckless auto and and this is cyclical
you know because Wells Fargo had been considered somewhat of a second secondary lender for
automobile motive for years and and it costs them a ton of money and they they basically got out
of it for a while where they said okay we're we're going to concentrate on people with good credit
and and apparently apparently well it's not apparently if you don't learn from history your bounds
are repeated so you're not learning from history that when you go down this path that
financially it doesn't necessarily make the best sense for either the banker the borrowed
and and so even though they took a couple years off from secondary and and and subpride lending
they jumped back into the pool with both feet yeah well the is the outcome going to be any different
this time around i don't think so i i don't see how it would be um but will it will it spruce up
the balance sheet for the short term my guess is it will yeah it'll make it'll make the numbers look
good in the short term that's what we see a bunch of these organizations do in service of trying to
hit some sort of stock performance goal trying to get a bonus things like that but to your point
out i actually think the onus is on customers more than ever before just because you can get approved
by Wells Fargo for a hundred and fifty percent loan to value ratio and you have a i don't know
five fifty credit score does not mean you take that auto loan you used to use a line in your career
well the bank or maybe i don't know if you use it but you've shared the line with me well the bank
approved you for this much so you can i mean like that's because you can get approved for it doesn't
mean you should take on that financial burden well exactly and yes that get that line gets thrown
around a lot to customers well you don't think the bank would have approved you for a loan this
size if they didn't think you had the ability to be making the payments even though in the back
of your head is the customer you're going how the hell am i going to do this um and then i will also
suggest to you that in many many many cases these borrowers are going to be settled with um
back end products from the finance office solid warranty pay spend that warranty's dent in
dignity whatever it is because because the finance people are going to look at them and go
you know the bank would really appreciate it if you had all these coverage so that
there will never be an issue of if you have a problem down the road and and so you know that's
that's what's about to happen and and so the back end profits on these deals are going to be
astronomical just crazy stuff hmm that is a little bit of a recipe for disaster at least i like to
think it is but dad let's turn our attention to some other news this time coming from Hyundai
did you see the price cuts that they announced on the ionic 5 did you see this i i did not you're
about to be i so excited to get your live reaction here we go dad Hyundai motor company will reduce
the sticker price of its Hyundai ionic 5 compact crossover by as much as $9,800 across trims
for the 2026 model year while continuing to offer a $7,500 cash incentive on 2025 models
through October so for those of you that are not familiar EV tax credits well they just ended now
there's a bit of a loophole that we discussed yesterday that 4 p.m. are trying to take advantage of
but that there you go up to a $10,000 grounding up $9,800 to $10,000 price decrease year over year
for the 25 to 26 model years and they continue to offer a $7,500 cash incentive on the 2025's
waza um well you know what's really interesting about that just a first blush uh that just
indicates to me uh just how overpriced all these vehicles have been and the reason they were
as overpriced as they were is because if they knew that there were enough federal and state
incentives to make them more attractive to customers and that when those incentives go away
well then suddenly the manufacturer has the capability of reducing the value of the vehicle
they're asking for it um because they know it's the only way they'll be able to sell it but it's
this makes no sense because all these automakers have come out and said we don't make any money
on EVs i get it yet on a whim you can you can you can reduce your price by $9,800 come on man you
can extend the 70 like sure they're they're they're they're publicly traded companies you see the
record of the earnings they know make a lot of money i guess but it from a percentage standpoint
percent is like but this is BS man you can just wake up and reduce the price by 10 g's come on get
out of here um yes so maybe maybe the in hindsight maybe the government should have never been
offering any type of tax incentives uh income tax incentives and credits in order to help move
these vehicles because all you did by doing that is uh make sure that the manufacturers were making
their hefty profits because the federal governments and state governments were underwriting the
sales of these things dad and and and it works i mean let's be very clear here the tax credits worked
you can see right here EV sales for Hyundai last month were up 153 percent so they sold a ton of
these and who's underwriting that partially the federal government no you and i and every out of the
Americans and every other taxpayer out there yeah which is us yeah yes yes so so you know when we
say well you know the federal government the federal government doesn't operate without our money okay
it's it's pretty damn simple okay it's so it's us so it when when the federal government subsidizes
the sale of EVs it's you mean every other American taxpayer that is subsidizing the sale of
those EVs and as it turns out apparently the manufacturers could have afforded to just lower
the damn prices of those vehicles to sell them without any type of incentivization from the government
from you and i um but you know lesson they're smart enough to get the governments to contribute
so that they can maintain their profit margins and meanwhile um we just continue to build our
deficits okay perfect GM dad their EV sales were up 107 percent for the month which is
absolutely crazy uh Toyota sold more cars last month Lexus sold more cars last month so
a really really really strong month for the auto industry we're starting to get the data here
that shows that a lot of EV sales obviously but even even Toyota and Lexus they just had
insanely strong months 14 percent growth that's incredible well we expected it we we expected
the the end of the uh federal tax credits to spur and and pull forward EV sales it worked it did
what it was supposed to do um you know had had they left it alone and said that they were going to
expire December 31st instead of September 30th then we wouldn't have seen such a strong
EV sales growth in in September we would have seen it in in November and December um so
yeah we we've people pulled forward they they pulled so many customers forward to take advantage of
that uh but yeah if the sales hadn't gone up then uh something was definitely wrong with
the entire uh situation yeah absolutely all right so we've got the pull heads that's what
just happened the most recently now the news of today is obviously we've got more and more
aggressive lending options to try and get more people approved for auto loans to buy cars makes me
wonder dad just quite how desperate this industry is going to look as we head into the end of the year
this is where these automakers are trying to sell as many cars as possible and obviously
Wells Fargo's an example they're trying to be as aggressive as possible to approve more and more
auto loans there that's that's how you keep the lights on in this thing you either you know create a
false sense of urgency or in the case of EVs it was a real sense of urgency yeah although now it feels
a little bit false if you bought one of those ionic fives as well the prices for the 2026 model you're
just went down by ten grand false sense of urgency i think is actually more appropriate and then
you've got the the approvals getting more and more approvals and customers having to bring fewer
dollars down to the table to make it happen this is yeah a messy situation and a great reminder to
our community yeah you don't need to buy a car don't buy one just keep driving the thing you have
into the ground yeah it is it is if you can't make the cars more affordable uh for the vast majority
of people well then make the uh make the uh getting alone easier for those who shouldn't qualify
and and then you can bring them into the pool of customers uh and and and and so that's what we're
doing we we and and well it's the collective way of the of the industry yeah thanking and automotive
not me and you um but that's that's what they're doing and we just know that down the road
this will not end well just saying October 1st 2025 this will not end well you heard it here first
well yes yes you did it that's my prediction this will not end well ladies and gentlemen
that two comments really quick and then we'll call it a show from rich acts of desperation and
the auto market are growing I agree I actually think the cadence that which we're hearing these
you know stories seeing these stories I think it is increasing and I do think it is
more important than ever before to stay on top of the news of what's going on because it does
create opportunities and from Joe early on the show thanks for the contribution Joe
wishing us a happy new year and asking us about Yom Kippur I'm not fast and I don't know say
Yom Kippur well you know I I can afford to fast when is Yom Kippur I should be should be any day
now um if it's Friday um you know we're taking the day off um well I I'm traveling you you can
maybe do a show I don't know we can talk about but I'm traveling on price I won't be able to do the
show but I have I have a I have a media obligation oh yeah you're doing a you're doing a um another
interview yeah yeah yeah so good anyway we appreciate appreciate the kind of wishes and
and the thoughtful contribution yeah let's call the show for today we're back tomorrow though
so tune in I'm sure we'll have more news for car edge live and things to talk about
I like your yellow shirt you look vibrant today Pablo well you know I'm trying to be as vibrant
as I can yeah I love it you look good thank you I folks we're back tomorrow I love you dad
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About this episode
Wells Fargo's recent move to approve riskier auto loans has raised alarms in the automotive finance industry, with credit scores as low as 540 qualifying for loans up to 150% of a vehicle's value. The episode discusses the implications of this trend, drawing parallels to the 2008 financial crisis, and highlights the increasing number of subprime borrowers. Additionally, the hosts analyze Edmunds data revealing rising auto loan delinquencies and the impact of aggressive lending practices on the market's stability. The conversation underscores the precarious state of auto financing and consumer debt.
Today on CarEdge Live, Ray and Zach discuss the latest news from Wells Fargo and Edmunds. Tune in to learn more. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com
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