Comedian John Oliver took a break from mocking Donald Trump and the Rio Olympics to warn about the dangers of subprime auto lending.
Oliver devoted nearly 18 minutes of his weekly HBO show “Last Week Tonight” on Sunday to subprime auto loans, which he said closely resembles the buildup to the subprime mortgage crisis that led to the Great Recession.
“There is concern that this could be the subprime mortgage crisis, but with cars,” Oliver said. “Normally, if you add the phrase ‘but with cars’ to any historical event, it sounds a lot more fun -- like ‘the assassination of Abraham Lincoln, but with cars.’ Sadly, this is the exception to that rule.”
Before blasting large lenders such as GM Financial and Santander for increasingly turning to subprime auto financing, he first examined and critiqued “buy-here, pay-here” used-car lots that offer financing on used vehicles to buyers with poor credit.
The result, Oliver said, is disastrous for low-income car buyers, pointing to a woman who was locked into a contract to pay $13,000 over the life of her loan for a car that was worth just $3,000.
“The only way it’s acceptable to sell someone a $3,000 car for $13,000 is if you slip a mint-condition X-Men, Issue 1 into the glove compartment,” he said. “At that point, you’re being generous.”
While warning that a subprime auto loan crisis could be brewing, Oliver noted that because auto loans make up a smaller portion of the U.S. economy, a potential event on the scale of the 2007-08 mortgage crisis is unlikely.
Industry viewpoint
Many industry experts agree. For example, Matt Carroll, senior director of financial services at Standard & Poor’s, said in March at the American Financial Services Association’s annual vehicle finance conference that the industry is “coming off the best part of the cycle,” so a rise in subprime lending and delinquencies is normal.
David Shevsky, Ally Financial’s chief risk officer, also said this month that auto lending-mortgage bubble comparisons are irrational because vehicles depreciate, car values are objective and dealers play a big role in the lending process.
In April, subprime origination volume increased 0.1 percent to $9.5 billion, but the share of subprime origination balance declined. Subprime made up 18.4 percent of the market, compared with 19.3 percent a year earlier, according to Equifax.
Even if subprime loans create market tension, Oliver said, “This wouldn’t be “The Big Short” all over again, so much as the direct-to-video version with Brad Garrett instead of Brad Pitt and instead of Ryan Gosling, an actual gosling named Ryan.”
