Based on car sales in the first half of 2015, we're on pace to beat the 17.4 million vehicles sold back in 2000.
But there's a troubling flip side to that retail boost to the economy…
You see, relatively low borrowing costs and a sympathetic bond market have helped push total U.S. auto debt to $1.01 trillion – the highest level ever.
At the same time, the rejection rate for car loans is hovering at just 3.3%. That's the lowest level on record at the New York Fed.
Even worse, more than a quarter of that debt is actually subprime, thanks to loose credit standards and the bundling of loans.
That hasn't stopped American auto production from screaming upwards, though.
We've been through this before, so we know it's all going to end badly. But that doesn't mean there's no money to be made on the way up.
America's Subprime "Dealer" of Choice
One major consequence of the financial crisis is tighter regulations for financial institutions. As a result, banks have shied away from subprime mortgages and severely curbed most other subprime loans.
So, most of these "easy" car loans are coming from one company – private equity and hedge fund firm Fortress Investment Group LLC (NYSE: FIG).
Fortress bought 80% of AIG's flailing consumer-loan unit in 2010, then renamed it Springleaf Holdings Inc. (NYSE: LEAF). It's now headed by Fortress chairman and co-founder Wesley Edens.
And Springleaf has sprung.
From Jan. 1 to April 30, Springleaf's business has originated 22% more personal loans. Since 2010, Fortress's share of Springleaf has swelled from $124 million to $3.5 billion, good for a 27-bagger return.
Equifax Inc. (NYSE: EFX) reports that in the first four months of this year, over a third of car, credit card, and personal loans were taken out by subprime borrowers, the largest portion since 2007.
Now Springleaf is angling for more, having struck a deal to buy Citigroup Inc.'s (NYSE: C) OneMain Financial unit for $4.25 billion in cash.
But that's attracted the attention of regulators.
According to The Wall Street Journal, Springleaf's management has indicated that the Justice Department has expressed "concerns" about the OneMain deal.
It's little wonder. If the purchase of OneMain succeeds, Springleaf will become America's largest subprime-focused lender, boasting 2.5 million borrowers across 2,000 branches.
Some of Springleaf's loans are unsecured, while others have collateral and can reach as much as $25,000. The average rate charged by Springleaf is 26%, which they defend since default rates are about 6% annually.
Meanwhile, north of the border, the situation is similar – but different all at the same time.
Here's what I mean…
Canadian Banks' Terrible Idea
More conservative Canadian lenders avoided the worst of the financial crisis.
But lending practices have since loosened considerably, casting doubt on the health of their auto and personal loans business.
In Canada, financial institutions have been offering car loans with extended amortization periods, some up to 96 months.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.