Double-Trouble (potentially) In The Auto Loan Market

There are two troubling aspects to the following snippets from this morning’s Bloomberg article titled “Subprime Auto Giant’s Loans Souring at Fastest Clip Since 2008”.

One is of course what it potentially says about prevailing economic trends, the other speaks to our serious concerns over what happens within the bond market when the economy ultimately begins contracting: The mammoth (historically-speaking) issuance of low-quality debt, at remarkably low rates, makes for one whale of a mess if things begin to unwind in a hurry (we’ve been there before):

Some loans made last year are souring at the fastest rate since 2008, with more consumers than usual defaulting within the first few months of borrowing, according to analysts at Moody’s Investors Service. Many of those loans were packaged into bonds.

Subprime car loans aren’t in a crisis, but lenders across the industry are facing more difficulty. Delinquencies for auto loans in general, including both prime and subprime, have reached their highest levels this year since 2011.

Santander Consumer had $26.3 billion of subprime auto loans as of June 30 that it either owned, or bundled into bonds, according to a report from S&P Global Ratings. That represents nearly half of the company’s total managed loans. The percentage of borrowers behind on their loans climbed to 14.50% from 13.80% a year earlier for the loans the company collects payments on, S&P said.

The percentage of borrowers that are at least 90 days late on their car loans is broadly growing, according to data from the Federal Reserve Bank of New York. At the end of 2018, the number of delinquent loans exceeded 7 million, the highest total in the two decades the New York Fed has kept track.


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