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Saturday, October 15, 2016

Subprime Auto Securitizations Show Signs Of Cracking As Delinquencies Rise

It will come as no surprise to our readers that sales of automobiles in the U.S. have bubbled over in recent years and stood at a SAAR of 17.7mm units at the end of September. To put that number in context, a 15-year useful life would imply that's more than 1 car for every driving age person in the United States. Obviously that's likely not sustainable which is probably why Ford executives admitted on a recent conference call that U.S. auto sales have likely reached a "plateau."

Of course, the only reason auto sales have bubbled over is due to the continuous degradation of lending standards over the past 6 years with borrower credit quality deteriorating while loan terms continue to get stretched. Which, as Bloomberg points out, has resulted in more subprime borrowers falling behind on their car loan payments at the end of September 2016 than at any other point in the preceding six years. According to S&P, subprime borrowers were behind by more than 60 days on about 4.85% of auto loans in August, the highest level since January 2010.

Rising delinquencies are readily apparent in GM's subprime securitizations where 31-60 day delinquencies have been on the rise since 2012 and now stand at over 8% of outstanding loans.

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1 comment:

Anonymous said...

New cars are way overpriced..it's cheaper to buy a car a few years old. A lot of people's credit is in the toilet since the economy is tanked. So buying a new car is not feasible, paying the mortgage is hard enough. They need to come down on prices and offer lower rates to customers..or they will be in the toilet too.