From the Fed’s G.19 release:
Consumer credit decreased at an annual rate of 3-1/4 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 7-1/4 percent, and nonrevolving credit decreased at an annual rate of 1 percent. In October, consumer credit decreased at an annual rate of 1-3/4 percent.
So total consumer credit is down ~$3.5Bn. Revolving credit was down nearly $7Bn from September while nonrevolving was up by about $3.5Bn.
The most telling thing about the release was the terms being extended by auto finance companies. Which auto finance companies? These:
Finance company data are from the subsidiaries of the three major U.S. automobile manufacturers and are volume-weighted averages covering all loans of each type purchased during the month.
So on average, rates offered are 250 – 300 bps lower than banks, maturities are being extended over 5 years, the amount financed has averaged more than $30K of the purchase price of the car over the last two months, and the LTV on those loans is over 90%.
So there you have it. The reason auto sales have turned in better than expected? Cheap financing in the face of 10% unemployment while asking the government for a handout via TARP in the case of two of the three companies.
If that doesn’t spell moral hazard or mispriced risk, I don’t know what does.