Sub-prime Car Loan Delinquency Augurs Trouble for Auto Industry
$F, FCAU, GM
The New York Fed warns that surging delinquency rates for subprime auto loans are a “significant concern” about the real health of the car industry.
“The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years,” the New York Fed said, in which iy analyzes trends in borrowing by American households each Quarter.
While saying that most auto loans were “still performing well,” the Fed said 6-M people were at least 90 days late on repaying their car loans.
The swelling delinquencies come at a time when unemployment is low and borrowers typically should be able to make their payments.
That such serious trouble is emerging in a relatively good economy suggests that lenders have been loosening their standards and letting borrowers take on more debt than they can afford.
“Economists fear that if the economy dips into another recession, the already large number of Americans on the verge of losing their cars to repossession, about 6-M will swell to record levels,” according to the report.
In Q-3, 2% of sub-prime auto loan balances became at least 90 days delinquent, up from 1.6% in Q-3 of Y 2014. In the depths of the recession, in Q-2 of Y of 2009, that rate peaked at 2.4%.
The rise in auto lending, particularly the subprime sector, has raised alarms among some regulators in Washington, such as Comptroller of the Currency Thomas Curry and Richard Cordray, head of the Consumer Financial Protection Bureau.
“Lenders, of course, know that subprime borrowers are more likely to become delinquent and charge higher interest rates on those loans. The mistake during the financial crisis was that while lenders expected higher defaults among subprime loans, they failed to anticipate just how high it would rise,” the WS-J explained.
“Subprime auto loans have many differences with the subprime housing loans that helped fuel the financial crisis. Cars can be quickly repossessed while home foreclosures can linger for years. Foreclosures can drag down the value of neighboring homes, a type of contagion, whereas the value of one’s car doesn’t change if a neighbor’s car is repossessed. And few people buy cars on credit, hoping to quickly turn around and flip them for a profit,” WS-J reported.
Hefty discounts during a robust Black Friday weekend helped boost November US auto sales between 4 and 5%, automakers reported Thursday, which could catapult results this year above a record high in Y 2015.
Industry analysts worried that the record discounts, also called incentives, were both artificially inflating demand and extending the auto sales boom ongoing since the economic crisis of Y’s 2008-09.
|NYSE:F||12.43||1 December 2016||0.47||12.23||12.8||12.18||95,007,300|
|HeffX-LTN Analysis for F:||Overall||Short||Intermediate||Long|
|Neutral (0.17)||Bullish (0.32)||Neutral (0.15)||Neutral (0.03)|
|NYSE:FCAU||7.74||1 December 2016||0.08||7.72||7.8||7.59||17,093,300|
|HeffX-LTN Analysis for FACU:||Overall||Short||Intermediate||Long|
|Bullish (0.48)||Bullish (0.36)||Very Bullish (0.52)||Very Bullish (0.54)|
|NYSE:GM||36.43||1 December 2016||1.90||34.81||36.66||34.79||37,077,800|
|HeffX-LTN Analysis for GM:||Overall||Short||Intermediate||Long|
|Bullish (0.49)||Very Bullish (0.60)||Neutral (0.24)||Very Bullish (0.62)|
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