There’s a round-the-clock debate among macroeconomists about how high interest rates need to go to cool off demand and bring inflation down. Rising delinquencies in loans, including auto loans, is seen as a sign that consumers are starting to buckle.
Very interesting article. Because securitization is the auto industry’s financial backbone, is this discrimination being carried over into those securities? Are lenders mislabeling non-white borrowers as higher risk so they can offload the note for a higher return and double dip on the markup?
It’s always seemed incredibly perverse to me that auto dealers offer financial products. About as backwards as banks offering cars for sale. Easiest solution IMO is to separate the two and prohibit auto dealers from offering loans (all financing must be third party) but I know this is a pipe dream (see note about loans being more profitable than cars).
More.... "finance managers" mark up as much as they think they can get away with. They'll offer usurious rates and when someone screams offer lower. I don't see how one could legislate against price negotiations.
Sales of new cars seems to be non negotiable in my last three experiences, a price was agreed online. Do people even bargain over new cars anymore?
I wonder what the stats are for Asians. Asians have a reputation for being "difficult" ie hard bargainers, South Asians are as likely to end up owning the dealership, before leaving, it's like money negotiating is a national sport or something.
I sold cars when I first came down out of the mountains and had running water and stuff. It was before I had a bank account, very educational.
Dealers mark up auto loans as much as they think they can get away with. Always have. People think that when the salesman completes all his paperwork and sends the buyer in to finance, that everything is over. It's not. Many dealerships make more profit on the loan than they do the sale of the car. If Black people are paying more for loans it's because they aren't as canny.
There's a substantial segment of the population called "consumers" that economists always refer to when discussing the effects of raising interest rates, etc. For example, Claudia describes a discussion about how high interest rates must go before the unnamed consumers start to "buckle." To economists, "consumers" seem to be in the same category as laboratory rats experimented on by scientists. Be assured that none of the economists having this discussion are in in this category. Somehow, this dynamic doesn't seem right to me.
The discrimination is self-reinforcing when higher interest rates lead to a higher rate of default.
A bad problem in the shadows. Some sunlight always has a good effect.
Not able to read article on Bloomberg. Just in case copying this from Jon Lanning https://www.chicagofed.org/publications/profitwise-news-and-views/2023/discrimination-auto-loan-market
Very interesting article. Because securitization is the auto industry’s financial backbone, is this discrimination being carried over into those securities? Are lenders mislabeling non-white borrowers as higher risk so they can offload the note for a higher return and double dip on the markup?
It’s always seemed incredibly perverse to me that auto dealers offer financial products. About as backwards as banks offering cars for sale. Easiest solution IMO is to separate the two and prohibit auto dealers from offering loans (all financing must be third party) but I know this is a pipe dream (see note about loans being more profitable than cars).
More.... "finance managers" mark up as much as they think they can get away with. They'll offer usurious rates and when someone screams offer lower. I don't see how one could legislate against price negotiations.
Sales of new cars seems to be non negotiable in my last three experiences, a price was agreed online. Do people even bargain over new cars anymore?
I wonder what the stats are for Asians. Asians have a reputation for being "difficult" ie hard bargainers, South Asians are as likely to end up owning the dealership, before leaving, it's like money negotiating is a national sport or something.
I sold cars when I first came down out of the mountains and had running water and stuff. It was before I had a bank account, very educational.
Dealers mark up auto loans as much as they think they can get away with. Always have. People think that when the salesman completes all his paperwork and sends the buyer in to finance, that everything is over. It's not. Many dealerships make more profit on the loan than they do the sale of the car. If Black people are paying more for loans it's because they aren't as canny.
How was borrower race identified? How was it determined that race was a contributing factor in loan rates given that correlation is not causation.
There's a substantial segment of the population called "consumers" that economists always refer to when discussing the effects of raising interest rates, etc. For example, Claudia describes a discussion about how high interest rates must go before the unnamed consumers start to "buckle." To economists, "consumers" seem to be in the same category as laboratory rats experimented on by scientists. Be assured that none of the economists having this discussion are in in this category. Somehow, this dynamic doesn't seem right to me.