‘Peak auto’ is here…

From Justin Brill, Editor, Stansberry Digest:

The latest data suggest the boom in auto sales has already peaked…

On Tuesday, U.S. automakers reported big declines in April sales. As Bloomberg reported Tuesday…

Sales at all six of the biggest automakers in the U.S. dropped again in April, with Ford Motor and Honda Motor posting the steepest declines – about 7% each…

The annualized pace of U.S. auto sales, adjusted for seasonal trends, slowed to 16.9 million in April, missing analysts’ average estimate for 17.1 million. A year ago, the selling rate was 17.4 million.

Industrywide deliveries are down 2.4% so far this year compared to the same period last year, according to researcher Autodata Corp. The four-month slump reinforces estimates for the U.S. auto market’s first annual contraction since 2009, the year GM and Chrysler reorganized in bankruptcy court.

Auto sales have now surprised to the downside for four consecutive months after setting an all-time record in 2016.

Meanwhile, subprime auto loans are going bad at a frightening rate…

As we noted in the March 23 Digest

According to credit-ratings firm Fitch, delinquencies of 60 days or more on these loans are now well above 5%… And they’re quickly closing in on 6%. As you can see in the following chart, these loans are going bad faster than they did during the 2008-2009 financial crisis…

Regular Digest readers know this is no coincidence…

The latest boom in auto sales was stimulated by subprime lending. Auto lenders – including the financing arms of the big three automakers themselves – pulled out all the stops to keep the party going…

They extended financing terms as far out as 96 months – eight years! – and they’ve pushed deeper and deeper into subprime territory, offering cars to folks with worse and worse credit.

But now, lenders are suddenly pulling back. As the Wall Street Journal reported this morning…

Wells Fargo, one of the largest U.S. auto lenders, last month reported a 29% fall in its auto loan originations for the first quarter from a year earlier. The decline, the biggest for the San Francisco-based bank in at least five years, was part of a common refrain in quarterly announcements from lenders including JP Morgan Chase, Ally Financial, and Santander Consumer USA.

Bankers’ caution is increasingly showing up in car sales, which Tuesday came in worse than expected for April. The declines are mostly occurring in lending to riskier borrowers, in particular those with low credit scores, where lending had ramped up for years…

Some banks, including regionals Fifth Third Bancorp and Citizens Financial Group, are beginning to retreat from higher-quality “prime” auto loans as new risks emerge. “It’s been an overheated sector,” said Fifth Third Chief Executive Greg Carmichael. “The auto business just isn’t as attractive right now.”

In other words, lenders are beginning to tighten credit in response to rising stress in subprime auto loans. And this is already causing a dramatic decline in auto sales.

This should sound familiar… Its exactly what weve been predicting for months.

But this trend is far from over. As Porter and his team explained in the February issue of Stansberrys Big Trade

The data is clear… We’ve had a spectacular auto-lending and leasing boom. Fewer and fewer people are paying cash for cars anymore. Today, about 80% of new cars are either financed at the dealership or leased. That’s up from roughly 60% 10 years ago.

And as you might expect, this surge in auto lending and leasing has fueled a car-buying bonanza. New-car and light-truck sales are running at around 17.5 million vehicles a year in the U.S. During the last recession in 2009, that rate had dropped to around 10 million.

All of this lending and leasing activity – aided by low interest rates – has played a big role in the dramatic auto industry recovery since the credit crisis.

But there’s a problem… The U.S. car market has always been highly cyclical. As you can see in the chart below, the auto industry regularly jumps between sales booms of more than 15 million and busts of less than 11 million.

The auto-lending and leasing boom over the past few years has set the auto industry up for yet another bust.

Crux note: Autos aren’t the only debt bubble on the brink of collapse… America’s malls are also dying. Learn more about the “Death of Malls,” including one of the best ways to profit right here.

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