FACT SHEET: How Bold Investments By the Administration in the Auto Industry and City of Detroit Put Americans Back …

During his State of the Union address, President Obama focused on America’s future and discussed the progress we’ve made on the economy since 2009. America is in the middle of the longest streak of private-sector job creation in history. Manufacturing has created nearly 900,000 new jobs in the past six years and the auto industry had its best year ever in 2015. And while there’s more work to be done to ensure a growing economy that works for all Americans, today, President Obama is visiting Detroit to experience firsthand the remarkable progress made by the American auto industry, the city and its people and neighborhoods.

When President Obama took office, the American auto industry was shedding jobs by the hundreds of thousands, with GM and Chrysler on the brink of failure and facing the possibility of liquidation–which estimates at the time suggested would have caused at least 1 million more jobs to be lost across the supply chain and around the country. Detroit was flat on its back, with unemployment headed to a peak of more than 25 percent. Many in Washington opposed providing government assistance and were ready to write off not just the American auto industry but the entire City of Detroit.

President Obama made the tough call in his first few months in office to place a bet on American workers and American manufacturing–and to place a bet on Detroit–by providing temporary Federal assistance to rescue the American auto industry. He also initiated a broader commitment to the City of Detroit that has been sustained and ongoing through a team of federal staff that partner with the Mayor, local business and community stakeholders to deliver tailored assistance, identifying unique programs and resources that have helped the people of Detroit get back on their feet. Because he acted quickly and aggressively, and demanded real change as a condition for government assistance, the American auto industry not only avoided a much deeper collapse but bounced back stronger than ever. Because he required the auto industry to modernize in exchange for that support, we are now producing the vehicles of the future that will enhance America’s competitiveness in the 21st Century and further reduce our dependence on oil.

The Administration’s efforts in Detroit include the continuous engagement of top Federal talent to support the Mayor, his team, and local partners–from City Hall officials to neighborhood advocates–tailoring Federal government support to address Detroit’s unique needs and opportunities. Alongside the progress of the auto industry, Detroit has made significant strides too. Unemployment in the city has been cut by more than half, and is now at its lowest levels since 2003. And because of the grit and determination of the people of Detroit and the President’s support, the city has begun a turnaround with brighter days ahead.

Today, President Obama is visiting Detroit to witness that progress up close. He will have lunch with Mayor Mike Duggan and special guests; deliver remarks at the United Auto Workers-General Motors (UAW-GM) Center for Human Resources on the Detroit Riverfront; and tour the Detroit Auto Show to see the 21st-Century cars, trucks, and auto technology that will help the American auto industry stay on top.

The Auto Rescue and the Auto Industry Resurgence

In late 2008, the American auto industry was on the brink of collapse. Access to credit for auto loans dried up and sales plunged 40 percent. In the year before President Obama took office, the industry shed over 400,000 jobs. Both GM and Chrysler were only weeks away from running out of cash and collapsing. Both companies faced the stark choice of seeking government support or facing almost certain uncontrolled liquidations, as no private source of credit was available anywhere near the scale needed. In this context, the Bush Administration extended short-term bridge loans to GM and Chrysler, but left it to President Obama to ultimately make the decision about how to resolve the industry’s historic crisis and what role, if any, the federal government should play. Following is a brief rundown of how the rescue played out:

  • Additional Government Support Was Deeply Unpopular: Providing additional support to the auto industry was strongly opposed in Washington. The auto rescue was described by Republicans in Congress as “the road toward socialism”; “nothing more than another government grab of a private company”; “without any plausible plan for profitability”; and “the leading edge of the Obama administration’s war on capitalism.” Both a December 2008 poll and a March 2009 poll found that more than 60 percent of Americans were opposed to the government extending assistance to General Motors and Chrysler to help them stay in business.
  • President Obama Required Fundamental Change in Exchange for Support: On March 30, 2009, after studying the plans submitted by GM and Chrysler, President Obama decided that he would not commit any additional taxpayer resources to these companies without requiring fundamental change and accountability in return for assistance. He rejected their initial viability plans and demanded that they develop more ambitious strategies to reduce costs and increase efficiencies.
  • The Damage from Allowing GM and Chrysler to Fail Would have been Immense: President Obama also recognized that failing to stand behind these companies would have consequences that extended far beyond their factories and workers. GM and Chrysler were supported by a vast network of auto suppliers, which employed three times as many workers and depended on the auto companies business to survive. An uncontrolled liquidation of a major automaker would have had a cascading impact throughout the supply chain, causing failures and job loss on a larger scale. Because Ford and other auto companies depended on those same suppliers, the failure of the suppliers could have caused those companies to fail as well. Also at risk were the thousands of auto dealers across the country, as well as small businesses in communities around the country that rely on the ongoing income from auto workers. Some experts estimated that were GM and Chrysler allowed to liquidate, at least 1 million additional jobs could have been lost. In addition, the cost to the government to provide social safety net services and health care to these workers and communities would have been substantial.
  • The President Placed His Bet on the American Auto Worker: To avoid this outcome, the President decided to give Chrysler, GM, and their stakeholders a chance to show that they could take the tough but necessary steps to become viable, profitable companies. Following the emergency loans to Chrysler and GM and a revamp of their businesses – with a total of $57 billion of additional taxpayer support committed by the Obama Administration – the companies returned to profitability, became more competitive, and served as engines for growth, leading a nationwide manufacturing recovery. By the end of 2014, the Administration exited the last investment under the auto rescue. Every dime of the funds provided by the Obama Administration had been repaid.

Here are just a few indicators of the progress in the American auto sector since 2009:

  • Strongest Auto Job Growth on Record: Since Chrysler and GM emerged from bankruptcy in mid-2009, the auto industry has added more than 646,000 jobs across manufacturing and retail, the industry’s strongest growth on record. The more than 300,000 auto industry manufacturing jobs have led a manufacturing sector that has added nearly 900,000 jobs since job growth began nearly six years ago.
  • American Auto Production has Doubled and Auto Sales are at an All-Time High: America is once again a world leader in auto production and technology. Auto sales in the US reached a record level of 17.4 million units in 2015, the strongest in history. And domestic production has more than doubled from below 6 million units per year in the depths of the crisis to about 12 million in 2015.
  • The Detroit Three are Hiring, Profitable, and Investing in the United States: GM, Chrysler, and Ford are adding jobs, generating profit, and investing in their US facilities. Since GM and Chrysler exited bankruptcy, the Detroit Three have invested in facilities and added shifts at plants all across the country, totaling more than $30 billion in domestic investment. Each of the companies is now positioned to compete globally and conducting Ramp;D on state-of-the-art fuel efficient, electric, and autonomous vehicles. The companies’ most recent agreements with the UAW commit to additional investments, additional raises, and additional jobs.
  • International Automakers are Investing in the United States Too: International automakers–recognizing the quality of our workforce and the strength and dynamism of the American economy–have $52 billion invested in US-based production facilities and directly employ more than 97,000 Americans.
  • American Automotive Products Exports are up 89 Percent Since 2009: In 2014, the total value of US automotive products exports was $160 billion, up 89 percent from 2009. And more than 60 percent of those exports in 2014 went to the Trans-Pacific Partnership (TPP) region, highlighting the opportunities presented to the American auto industry by the tariff cuts and elimination of non-tariff barriers included in TPP.
  • American Auto Technology is Again the Envy of the World: Due to American innovation and commonsense fuel efficiency standards, the fuel economy of new vehicles sold in the US is at an all-time high, the cost of batteries has fallen 70 percent, and the distance our electric cars can travel on one charge has increased significantly. American automakers are expanding consumer choice and leveraging this progress to design lower-priced low-carbon and electric vehicles that are poised to be strong competitors in the global market while incorporating new technologies that have the potential to save thousands of lives per year. And they are not slowing down; one automaker recently announced they sought more patents for breakthrough technologies last year than they have in the last 100 years.
  • Ramping Up Investments and Writing the Rules of the Road for the Auto Technologies of the Future: Autonomous vehicles (or “self-driving cars”) have the potential to transform transportation, giving us the chance to lead the world in a technology that can save lives, reduce emissions, and give new mobility to millions of elderly and disabled Americans. The President and his Administration are taking bold new steps to make that a reality, including by proposing to invest $4 billion in autonomous and connected vehicle research, development, and deployment efforts. To help accelerate deployment, last week Secretary Foxx announced at the Detroit Auto Show that he would take new regulatory action to move beyond piloting and testing for self-driving vehicles. Among those efforts will be redefining regulations in order to enable technology innovation, establishing a paradigm for testing and performance standards to ensure vehicle safety, partnering with states on model state legislation to prevent a patchwork of approaches that would slow down innovation, and proposing updates to our national rules of the road to accommodate self-driving vehicles. In addition, earlier this year the Administration launched a $40 million Smart Cities Competition to challenge mayors across the country to develop strategies for deploying self-driving cars, autonomous vehicles, and smart sensors to prototype the future of transportation in their cities.

Federal Support for a Resurgent Detroit

Over the past seven years, this Administration has been steadily taking a different approach to engaging in communities–disrupting an outdated, top-down way of doing business, and transforming the Federal government into a more effective partner for local stakeholders. This approach has led to the launch of numerous initiatives and partnerships in places across the country, such as the Strong Cities Strong Communities initiative, memorialized by a 2012 Executive Order, to embed full-time Federal staff with city governments to provide capacity and technical assistance to cities in economic crisis

The Administration has had a Strong Cities, Strong Communities team on the ground in Detroit since 2011. Detroit was one of the original fourteen cities to receive full-time Federal staff embedded in the city government to provide capacity and technical assistance by working directly with city leaders, local business, philanthropy, neighborhood and community leaders to identify federal resources, cut through red tape, and ultimately co-develop solutions with city leadership, helping local partners achieve their economic goals. In 2013, when Detroit filed for bankruptcy, the President appointed a special federal coordinator and interagency team to provide additional sustained municipal capacity and customized technical assistance, and assist in identifying existing federal resources to support the city. Detroit’s challenges were decades in the making and will not be resolved overnight, but this collaboration has led to some notable and steady progress.

Today, the Detroit Federal team is working to provide a “one-government” approach, bringing federal resources and expertise across agencies together to support Detroit. At the direction of the President, this robust on-the-ground engagement with Detroit Mayor Mike Duggan has yielded impressive results. This partnership has led to many recent accomplishments, including:

  • Significant Progress Toward Blight Elimination: The Treasury Department’s Hardest Hit Fund provided Michigan with more than $130 million that was directed to the City of Detroit for demolition. Detroit has taken down over 7,500 blighted structures in under two years while maintaining a careful balance between program speed, environmental impact, and cost. Independent studies found a payoff of more than 4:1 in increased property values as a result, and even greater increases where demolition was combined with other neighborhood improvements. Building auctions and rehabilitation are incorporated where possible and vacant lots are available for neighbors to purchase for $100.
  • Going from Half the City in the Dark to High-Efficiency Lighting Everywhere in Less than Two Years: In 2014, nearly half of Detroit’s 88,000 streetlights were dark. The Department of Energy provided technical assistance on advanced lighting to the newly established Public Lighting Authority (PLA), and in less than two years, the city will go from being in majority darkness to being re-lit with a smaller carbon footprint. Early estimates show that the LED street lights will save nearly 46 million kilowatts of energy per year, resulting in nearly $3 million in annual cost savings for the City. Anticipated emissions reductions are equivalent to the annual emissions from 10,993 passenger vehicles.
  • Supporting Workforce Training for Young People, the Long-term Unemployed, and the Formerly Incarcerated: Detroit received a $5 million demonstration grant from the Department of Labor to support additional workforce training for youth and the long-term unemployed. A portion of the funds is used to support an American Job Center (AJC) within a correctional facility and to launch a job preparation program for citizens returning to civilian life from incarceration. Detroit’s My Brother’s Keeper (MBK) Initiative works closely with these efforts to support returning citizens.
  • Meeting Detroit’s Full Bus Schedule for the First Time in Decades: With the support from a $25 million Department of Transportation grant, Detroit purchased 80 new buses so that the city can now, for the first time in decades, meet its full bus schedule. There are now 192 buses on the road daily, the most in more than 20 years, and 24-hour service was recently announced for some key routes. Ridership is up by 25,000 to 50,000 trips per week since adding the buses last year, while customer service complaints are down 20 percent.
  • Innovative TIGER Grants to Support a Regional Transit Authority and M-1 Rail: The Department of Transportation provided more than $25 million in TIGER grants to Detroit for the new M-1 Rail that connects the Downtown and Mid-Town corridors. The funding for the M-1 Rail inspired the creation of the Regional Transportation Authority (RTA), a long-sought goal of transportation planners.
  • Supporting Expanded Affordable Housing: In 2014 and 2015, the Department of Housing and Urban Development (HUD) closed on financing for 14 multi-family development projects, including substantial renovation or new construction of over 1,400 units of affordable and market-rate housing (with 600 renovations completed to date).HUD also provided over $16 million in capital funds to the Detroit Housing Commission to assist in the operation and renovation of Detroit’s public housing units, which has been returned to local control after a decade in receivership.
  • Investing in Green Infrastructure That Prevents Flooding: In the aftermath of a flooding disaster in August 2014, HUD provided $8.9 million for green infrastructure projects that will redirect water out of the over-loaded sewer system and into more sustainable gardens, bioswales, and tree plantings. The Environmental Protection Agency, in partnership with foundations and non-profits, has supported projects that allow vacant lots to be converted to rain gardens.
  • Developing a Comprehensive Plan for Spurring Manufacturing: Detroit was one of the first 12 communities designated as an Investing in Manufacturing Community Partnership (IMCP)–a Federal initiative to support comprehensive economic development strategies designed by communities. Through the Advance Michigan initiative, over thirty partner organizations banded together to build the region’s capabilities to master the next frontier of automotive technology and manufacturing through new supplier networks, infrastructure, export and foreign direct investment opportunities, and more. The IMCP designation also prompted Advance Michigan and its partners to commit to $177 million in training and workforce development activities to upgrade the region’s talent infrastructure through new talent attraction and training in the latest manufacturing technologies for incumbent workers.
  • Supporting Groundbreaking Auto Parts Research through Manufacturing Innovation Hubs and over $140 million in Public-Private Funding Going to Detroit: In 2014, Detroit won the competition for the Department of Defenses Lightweight Innovations for Tomorrow (LIFT) lab, bringing over $140 million in public-private investment in cutting-edge manufacturing research to Detroits oldest neighborhood, Corktown. In 2015, the Department of Energys Institute for Advanced Composites Manufacturing Innovation (IACMI) announced plans to co-locate some of its work with LIFT. This co-location joins two research facilities, reflecting how materials need to be joined and work together in cars of the future: lightweight metals working with advanced composites.
  • Bolstering Economic Development: The Department of Commerces Economic Development Administration has invested over $5 million in the Detroit area since 2010, including NextEnergy’s improvements to a battery testing facility, as well as funds to support an advanced energy storage system cluster and developing an advanced manufacturing cluster. The Department of Energy awarded funds to NextEnergy to support clean energy small businesses and entrepreneurs.
  • Strengthening Global Engagement: Detroit sits on an international border with Canada that is the site for the New International Trade Crossing (NITC) approved in 2015. The Detroit-Windsor Border is the richest border in the world with more than $350 million in trade crossing every day, making global engagement an underused asset in Detroits recovery. To that end, the State Department helped the Mayor launch the City’s first-ever Mayor’s Office of International Affairs in October, with Secretary Kerry. The team is assisting the Mayor in creating the citys first global engagement strategy, finding resources, leading trade missions, and developing a refugee resettlement strategy to support resettlement of refugees from Syria in support the of Administrations policy.

In 2016, the Federal-Detroit partnership will continue to address the Mayors priorities in expanding access to mortgage finance, building the workforce training system, developing Detroits resiliency, and supporting global trade that benefit Detroiters.

Huntington’s 4Q Profit Rises on Commercial, Auto Loans

Deutsche Bank Said to Probe Subprime Auto Securitizations

Deutsche Bank AG officials are reviewingwhether some employees exaggerated demand as they marketed new securities backed by risky auto loans, potentially suppressing yields for investors, according to a person with knowledge of the matter.

The bank has looked at communications between the employees and investors to determine whether such marketing practices were normal salesmanship or if they crossed a line, said the person, who asked not to be named because the matter is private.The lender has also looked at whether preferential treatment in the allocation of the bonds may have improperly given the biggest investors a leg up over smaller firms, the person said.

The bank’s inquiry comes as the US Securities and Exchange Commission expands an industrywide crackdown on trading and sales practices in markets where mortgages, auto loans and other debt are bundled into securities. It’s also raising new questions in the booming market for subprime auto-loan securities that some regulators havelikened to the mortgage-bond binge of the 2000s.

CFPB Continues Stated Intention to Target Large Non-Bank Auto Lenders

In December 2015, the CFPB took action against non-bank auto lender CarHop. In so doing, the CFPB continued to carry out its stated intention of expanding its regulatory oversight to large non-bank auto lenders.

The CFPB ordered CarHop and its affiliated financing company, Universal Acceptance Corporation (Universal), to cease their allegedly illegal activities and pay a civil penalty of nearly $6.5 million. In addition to selling cars, CarHop and Universal originate and service auto loans at many retail locations across more than a dozen states. As part of its business model, CarHop encouraged customers with poor credit to apply for loans, and promised that it would help consumers build up their credit by reporting good credit when consumers made their payments on time. The CFPB alleges that CarHop and Universal failed to consistently report good credit as promised, inaccurately reported that customers had past-due balance, and erroneously reported that customers who returned vehicles for a full refund still owed a balance. The CFPB found that these actions were unfair and deceptive under Dodd-Frank, and ordered CarHop and Universal to cease misrepresenting that they will report borrowers good credit, correct erroneous credit reporting information, provide credit reports to harmed consumers, and implement a compliance program.

As LenderLaw Watch previously reported, the CFPB issued a final rule on June 10, 2015, expanding its regulatory authority to larger nonbank auto lenders. The CFPBs action against CarHop and Universal is the latest such enforcement action, and demonstrates that nonbank auto financiers will continue to be an area of focus for the CFPB. This enforcement action comes on the heels of a House of Representatives report criticizing the CFPBs efforts to regulate discriminatory lending by nonbank indirect auto lenders. However, as the enforcement action shows, the CFPB will continue to exercise its expanded authority and continue to actively regulate nonbank auto lenders.

Virginia officials offer auto title loan firms a chance to keep information secret — they take it

The nation’s three major auto-title lenders are pressing Virginia officials to keep a wide range of their business records secret, including details about how often they get in trouble with regulators and how many cars they repossess from buyers who can’t repay their loans.

The bid for secrecy is clear from heavily redacted annual reports the lenders filed with Virginia officials on Thursday. The redacted reports were submitted to the state as part of a public records dispute between the Center for Public Integrity and the firms TitleMax of Virginia Inc.; Anderson Financial Services LLC, doing business as LoanMax; and Fast Auto Loans Inc.

Title loans are controversial because of punishing interest rates they can impose on borrowers. During 2014, the average title loan in Virginia was for $1,048 and took nearly a year to repay at 222 percent annual interest, according to data the state aggregates from all title lenders.

The public records dispute arose in November when the Center requested copies of the 2014 annual reports, which include more detailed and individual data on their operations, the title lenders filed with the Virginia Bureau of Financial Institutions.

The annual reports include sales and income figures, the volume of loans made and their terms, as well as sensitive information such as how often the lenders repossess cars when buyers fail to pay them. The firms also must disclose if they’ve been investigated or cited by regulators in other states or at the federal level. The annual reports don’t contain the names of any borrowers or their financial condition.

Virginia officials said nobody had asked for the annual reports before the Center made its request, and they could find no legal basis to not release them. But state officials gave the title loan companies a chance to submit redacted copies of their annual reports and cite a legal basis for withholding any portion of the reports.

In its report filed Thursday, Fast Auto Loans disclosed that it operates 69 stores in Virginia, but little else. The firm blacked out details such as the number of loans it makes and the interest rates it charges, the default rate and the number of cars it repossesses. That’s “proprietary and financial information” and making it public would be “detrimental” to the business, Fast Auto wrote.

Fast Auto answered “yes” to a question in the report form that asks if the company or its officers had been “the subject of any regulatory investigation” by any state or federal agency in the past three years. But it concealed details, arguing, “Such information is protected from disclosure as confidential due to the pending nature of the investigations.”

While Fast Auto revealed the names of some top executives, including president and CEO Robert I. Reich, it scrubbed out ownership details.

TitleMax of Virginia also disclosed little beyond the name of CEO Tracy Young and that it operates 96 stores in the commonwealth. The company argued that it wanted to protect “trade secrets” from its competitors.

“This would permit competitors to identify the strengths and weaknesses of the TitleMax’s products and their financial risks, which would cause substantial competitive harm to TitleMax,” the report states.

Anderson Financial/dba LoanMax didn’t name the company’s officers, though it listed its headquarters address in Alpharetta, Georgia, and noted it had 73 stores in Virginia.

LoanMax noted that it had reported regulatory actions to the commission “under the assumption that the annual report would not be publicly disclosed.”

“Disclosing the information in question to the public could create a disincentive for motor vehicle title lenders to disclose information to the commission,” according to the report.

The commission will hold a hearing and take testimony on the dispute Jan. 22 in Richmond.

Whether the records are public is not entirely clear because the State Corporation Commission operates outside the Virginia open records laws.

That should change, said Megan Rhyne, executive director of the Virginia Coalition for Open Government.

Rhyne said the commission “regulates so many of the businesses that have direct impact on the public, yet there is far less ability to view the regulatory records … than the records of any other government agency or department.”

EMEA Auto Loans and Leases ABS stable through November last year

EMEA Auto Loans and Leases ABS stable through November last year
The overall performance of the auto loan and auto lease asset-backed securities (ABS) market in Europe, the Middle East and Africa remained stable during the three-month period ended November 2015, according to the latest indices published by Moodys. The sectors average performance trend was positive in terms of delinquency ratios and cumulative losses.
http://www.ftseglobalmarkets.com/

Why Long-Term Auto Loans Are a Good Option in Boston

City of Boston Credit Union has been offering financial products and services to members for 100 years. Individuals that live or work in Norfolk or Suffolk County can choose City of Boston Credit Union as their financial partner. With four full-service branches and convenient online and mobile channels, members can have easy access to their accounts anytime.

Boston is home to historical landmarks like the Old South Meeting House, world-class educational institutions and a variety of recreational activities. It is also home to exceptional rates on car loans.

As you search for your next set of wheels, seek out auto loan options from local financial institutions; they can offer you more competitive rates and loan features. Heres why long-term auto loans might be your best auto loan option for your next car in Boston.

Read: 30 Biggest Dos and Don’ts When Buying a Car

Benefits of a Long-Term Boston Auto Loan

A long-term Boston auto loan can make car ownership a reality for many residents, allowing you to afford a new or used car without burdening your monthly budget. These types of auto loans are growing increasingly popular, according to a 2015 study conducted by Experian.

Many buyers are payment sensitive, said Dan Picard, consumer lending manager at City of Boston Credit Union. By selecting a long-term repayment term, the payment will be lower than one selected for 60 or 72 months.

How Much You Can Save on Long-Term Auto Loans

Although a long-term auto loan might cost you more over the life of your loan compared to a short-term loan, it can free up money in your budget so you can afford other responsibilities, like grocery purchases and your mortgage.

In fact, an 84-month auto loan can cut hundreds of dollars off your monthly auto loan payment. Credit unions can also offer you lower auto loan rates than the national average among commercial banks, which was 4.05% APR in November 2015, according to data released by the Federal Reserve.

City of Boston Credit Union, for instance, offers auto loan rates as low as 1.99% APR. Heres a look at how term length affects the affordability of your monthly car payments, assuming a 1.99% APR on a $25,000 auto loan:

  • 48-month auto loan: $542/month
  • 60-month auto loan: $438/month
  • 72-month auto loan: $369/month
  • 84-month auto loan: $319/month

Drawbacks of Using Long-Term Loans

If you are looking to keep your total loan cost down, a long-term option might not be the best approach for you. Because you are stretching out the length of your loan, youre liable to pay more in interest than on a short-term loan.

Consider an auto loan for $15,000 with a 2.50% APR. On a 48-month auto loan, you will pay $936.72 in interest over the life of your loan. Your monthly payments will be $329.

On an 84-month auto loan with the same rate, youll pay $1,648.76 in interest, a little over $700 more. However, with an 84-month auto loan your monthly payments will be $195, freeing up $134 each month. You can put this extra cash toward other responsibilities, like student loans or your retirement plan.

While it might be nice avoiding paying a lot in interest, affording high monthly payments on a car is not a reality for many Boston residents. The average rent in Boston, for example, is around $2,100 per month, according to Jumpshell, a service that connects renters with rental agents.

How Upside Down Loans Affect Future Buying

Although stretching out your payments helps you afford your car month to month, you also put yourself at risk of an upside down auto loan. An upside down car loan is when you owe more money on your car than it is worth.

If you are involved in an accident and there is a total loss, there could be a gap between the payoff you owe your financial institution and what the insurance company will pay for a value, said Picard. For car buyers considering long-term auto loans, Picard said GAP insurance can protect your investment. In the event of a total loss, GAP insurance can pay the difference between what you owe on your auto loan and what your insurance will pay for your car.

Overall, it’s important to weigh your financial decisions to decide the best course of action for you. In some instances, a short-term auto loan might be the better option if you plan to keep the total cost of borrowing down. However, for most Boston residents whose wallets are burdened with high rent and mortgage costs, long-term auto loans can be an affordable solution, allowing you to own a car while affording other responsibilities.

“Buy Here, Pay Here” Dealer To Return $700K To Consumers Over Deceptive Lending Practices

Federal regulators continued their crackdown on not-so-upfront buy-here, pay-here auto dealers today, ordering a Colorado-based dealer to pay nearly $1 million in restitution and fines for operating an abusive financing scheme. 

The Consumer Financial Protection Bureau announced today that Herbies Auto Sales must provide $700,000 in refunds to customers and pay a $100,000 fine to resolve allegations it hid finance charges and deceived consumers purchasing vehicles.

Herbies Auto Sales, also known as Y King S Corp., operates as a subprime, buy-here, pay-here dealer, selling cars and originating auto loans.

According to the CFPBs consent order [PDF], from at least 2012 through May 2014, the company advertised misleading low 9.99% annual percentage rates to consumers via showroom window displays and other marketing, without disclosing other fees, including a $1,650 required warranty, a $100 payment for a required GPS payment reminder device, and other credit costs as finance charges.

This ruse helped Herbies convince consumers that they would get the 9.99% APR instead of the much higher rate actually charged, the CFPB alleges.

Under the CFPBs enforcement action, Herbies must provide $700,000 in restitution for consumers who financed cars with the company after Jan. 1, 2012.

The companys $100,000 civil penalty will be suspended as long as redress is paid.

Additionally, the company must revamp its practices to stop deceiving consumers during financing process, stop posting deceptive automobile prices, and start providing certain financing information in advance.

From Real Estate To Stocks To Commodities, Is Deflation The New Reality?

So, where do we begin?

The economy has been firing on all eight cylinders for several years now. So long, in fact, that many do not or cannot accept the fact that all good things must come to an end. Since the 2008 recession, the only negative that has remained constant is the continuing dilemma of the underemployed.

Let me digress for a while and delve into the real issues I see as storm clouds on the horizon. Below are the top five storms I see brewing:

  1. Real estate
  2. Subprime auto loans
  3. Falling commodity prices
  4. Stalling equity markets and corporate earnings
  5. Unpaid student loan debt

1. Real Estate

Just this past week there was an article detailing data from the National Association of Realtors NAR, disclosing that existing home sales dropped 10.5% on an annual basis to 3.76 million units. This was the sharpest decline in over five years. The blame for the drop was tied to new required regulations for home buyers. What is perplexing about this excuse is NAR economist Lawrence Yuns comments. The article cited Yun as saying that:

most of Novembers decline was likely due to regulations that came into effect in October aimed at simplifying paperwork for home purchasing. Yun said it appeared lenders and closing companies were being cautious about using the new mandated paperwork.

Here is what I do not understand. How can simplifying paperwork make lenders more cautious about using… the new mandated paperwork?

Also noted was the fact that median home prices increased 6.3% in November to $220,300. This comes as interest rates are on the cusp of finally rising, thus putting pressure (albeit minor) on monthly mortgage rate payments. This has the very real possibility of pricing out investors whose eligibility for financing was borderline to begin with.

2. Subprime auto loans

Casey Research has a terrific article that sums up the problems in the subprime auto market. I strongly suggest that you read the article. Just a few of the highlights of the article are the following points:

  • The value of US car loans now tops $1 trillion for the first time ever. This means the car loan market is 47% larger than all US credit card debt combined.
  • According to the Federal Reserve Bank of New York, lenders have approved 96.7% of car loan applicants this year. In 2013, they only approved 89.7% of loan applicants.
  • Its also never been cheaper to borrow. In 2007, the average rate for an auto loan was 7.8%. Today, its only 4.1%.
  • For combined Q2 2015 and Q3 2015, 64% of all new auto loans were classified as subprime.
  • The average loan term for a new car loan is 67 months. For a used car, the average loan term is 62 months. Both are records.

The only logical conclusion that can be derived is that the finances of the average American are still so weak that they will do anything/everything to get a car. Regardless of the rate, or risks associated with it.

3. Falling commodity prices

Remember $100 crude oil prices? Or $1,700 gold prices? Or $100 ton iron ore prices? They are all distant faded memories. Currently, oil is $36 a barrel, gold is $1,070 an ounce, and iron ore is $42 a ton. Commodity stocks from Cliffs Natural Resources (NYSE:CLF) to Peabody Energy (NYSE:BTU) (both of which I have written articles about) are struggling to pay off debt and keep their operations running due to the declines in commodity prices. Just this past week, Cliffs announced that it sold its coal operations to streamline its business and strengthen its balance sheet while waiting for the iron ore business to stabilize and or strengthen. Similarly, oil producers and metals mining/exploration companies are either going out of business or curtailing their operations at an ever increasing pace.

For 2016, Citis predictions commodity by commodity can be found here. Its outlook calls for 30% plus returns from natural gas and oil. Where are these predictions coming from? The backdrop of huge 2015 losses obviously produced a low base from which to begin 2016, but the overwhelming consensus is for oil and natural gas to be stable during 2016. This is clearly a case of Citi sticking its neck out with a prediction that will garnish plenty of attention. Give it credit for not sticking with the herd mentality on this one.

4. Stalling equity markets and corporate earnings

Historically, the equities markets have produced stellar returns. According to an article from geeksonfinace.com, the average return in equities markets from 1926 to 2010 was 9.8%. For 2015, the markets are struggling to erase negative returns. Interestingly, the Barrons roundtable consensus group predicted a nearly 10% rise in equity prices in 2015 (which obviously did not materialize) and also repeated that bullish prediction for 2016 by anticipating an 8% return in the Samp;P. So what happened in 2015? Corporate earnings were not as robust as expected. Commodity prices put pressure on margins of commodity producing companies. Furthermore, there are headwinds from external market forces that are also weighing on the equities markets. As referenced by this article which appeared on Business Insider, equities markets are on the precipice of doing something they have not done since 1939: see negative returns during a pre-election year. Per the article, on average, the DJIA gains 10.4% during pre-election years. With less than one week to go in 2015, the DJIA is currently negative by 1.5%

5. Unpaid student loan debt

Once again, we have stumbled upon an excellent Bloomberg article discussing unpaid student loan debt. The main takeaway from the article is the fact that about 3 million parents have $71 billion in loans, contributing to more than $1.2 trillion in federal education debt. As of May 2014, half of the balance was in deferment, racking up interest at annual rates as high as 7.9 percent. The rate was as low as 1.8 percent just four years ago. It is key to note that this is debt that parents have taken out for the education of their children and does not include loans for their own college education.

The Institute for College Access amp; Success released a detailed 36 page analysis of what the class of 2014 faces regarding student debt. Some highlights:

  • 69% of college seniors who graduated from public and private non-profit colleges in 2014 had student loan debt.
  • Average debt at graduation rose 56 percent, from $18,550 to $28,950, more than double the rate of inflation (25%) over this 10-year period.

Conclusion

So, what does this all mean?

To look at any one or two of the above categories and see their potential to stymie the economy, one would be smart to be cautious. To look at all five, one needs to contemplate the very real possibility of these creating the beginnings of another downturn in the economy. I strongly suggest a cautious and conservative investment outlook for 2016. While the risk one takes should always be based on your own risk tolerance levels, they should also be balanced by the very real possibility of a slowing economy which may also include deflation. Best of health and trading to all in 2016!

Auto news: recalls, gas prices, future thinking

Recall: Hyundai has recalled nearly a half-million midsize cars in the United States to replace the engines because a manufacturing problem could cause them to fail, the Associated Press reported. The recall covers 470,000 Sonata sedans from the 2011 and 2012 model years equipped with two- or 2.4-liter gasoline engines. The company also is recalling nearly 100,000 Accent small cars because the brake lights can fail. At the time, the Sonata was Hyundais top-selling vehicle in the country.

The price is right: GalvaNews.com reported that average retail gasoline prices in Illinois rose 3.3 cents per gallon in early December, averaging $2 per gallon, according to GasBuddys daily survey of 4,378 gas outlets in the state. The national average has decreased 15.8 cents per gallon during the last month and stands 53.3 cents per gallon lower than this day one year ago. However, higher prices are expected in the spring, due to expected maintenance and a switch to more expensive summer blends, said a senior petroleum analyst for GasBuddy.

Self-propelled: Google and Ford will create a joint venture to build self-driving vehicles with Googles technology, according to Yahoo! Autos. By pairing with Google, Ford gets a massive boost in self-driving software development; while the automaker has been experimenting with its own systems for years, it only revealed plans this month to begin testing on public streets in California. Google has 53 test vehicles on the road in California and Texas, with 1.3 million miles logged in autonomous driving.

Car Maximum exposure: In the wake of used car buying conglomerate CarMax expanding into the Boston area, consumer advocacy groups are condemning the national used car chain for selling cars with pending recalls, The New York Daily News noted. Two groupsthe Consumers for Auto Reliability and Safety, and the Massachusetts Public Interest Research Groupclaim in a report that the nationwide used-car dealerships sell recalled vehicles with defects that could be lethal.

Forward-thinking: Wallpaper.com listed what it considers to be the 10 concept cars from the Tokyo Motorshow. They include a Honda stand-up commuter vehicle resembling a stormtrooper helmet, a Nissan boxcar with a virtually virtual interior and a Toyota fuel cell vehicle that doubles as a portable energy generator.

Loan ranger: Subprime auto lending is shifting into higher gear, raising some concerns in Washington, DC, where top financial regulators have sounded alarms about this category of loans, The Wall Street Journal noted. A report says that over the six months through September, more than $110 billion of auto loans have been originated to borrowers with credit scores below 660the bottom cutoff for having a credit score generally considered good. Of that sum, about $70 billion went to borrowers with credit scores below 620scores considered bad.

The truck stops here: The Senate voted to drop a proposal to increase the length of twin-trailer trucks that are allowed on US roads from an appropriations bill, The Hill noted. Trucking groups were pushing Congress to increase a current limit on the length of double-trailer rigs, from 28 feet to 33 feet.