What have new cars which are more friendly to the environment with lower carbon gas emissions and increased m.p.g. have in common with the present day unprecedented turmoil in the financial markets of the world in which United States sub prime mortgages have featured so much?
A well known French car maker has embarked on a new project to look into the feasibility of mass producing an ultra environmentally friendly car based on their new, well acclaimed concept car which is currently on show at the Paris Motor Show.
Through their new concept car they are now taking a new approach to an eco friendly vehicle. Among their imaginative radical ideas are a much simplified design and the reduction in the number of components thereby leading to a much more lightweight car.
Without compromising comfort or safety among their ideas will be the ability to remove the dashboard and instead of a door constructed of 12 components there will be only 2 parts made from recycled materials and their power units will be ultra economical with minimal carbon gas emissions.
All the above will contribute towards a vehicle to match the environmental and financial requirements of markets in our economical challenging world of today.
Now while the above illustrates a good positive side of the car industry the other side of the coin is a HUGE sub prime car market in the U.S.. Never heard of it? Then pin your ears back and listen.
The U.S. sub prime car loan business has been ongoing since at least 2004. The industry figures for 2006 reveal that automotive dealers initiated nearly $50BILLION in sub prime new vehicle loans.
Of the near 10 million customers in 2006 just under 2 million were in the sub prime category who leased or financed a new car deal either with a bank or financial company.
For clarity the term sub prime relates to a customer with a Fair Isaac Corporation (FICO) Classic Auto Score below 650. Sub prime customers normally have longer loan periods – an extra 6 months – than non sub prime and are also able to secure a loan with a lesser deposit of under 12% compared to the normal rate of 17.5%.
With no firm figures to hand for later than 2006 the possibility is that anyone who has defaulted on their sub prime mortgage is likely to default on their car loan. The only saving grace with the car loans is that they are fixed rate throughout their term rather than variable as with mortgages.
The sub prime car business accounts for approx 25% of all car loans and leases in the compact car section which means most European car imports into the U.S. should not be affected as most of these imports are in the luxury up market section.
The U.S. auto market had tried to adjust to the then current economic situation by adjusting their lending criteria to take account of customer profiles.The intense pressure on the car makers and retailers to meet sales quotas and market share led them to practically sell to anyone, which has led us to where we are today, in the biggest mess anyone can remember.
To sum it up, the market demanded sales quotas and figures be met, the rules were changed to allow this and all due diligence went out the window, for what, for GREED.
The repercussions have started for EVERYONE.