Subprime Auto Loan Crisis Chronometer

Crisis /krīsis/: A turning point that results in a battle over loss allocation.

Will there be a crisis? Are we near one?

Practices and factors similar to those contributing to the subprime mortgage meltdown are now impacting subprime auto lending and related ABS. The gauges reflect our take on how they are impacting risks for lenders and investors.

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The Subprime Auto Loan Crisis Chronometer shows the risk of battles over loss allocation.
Oct 2017
Lending Practices and Factors i
Subprime and deep subprime lending and securitization have risen sharply; delinquencies are on the rise, but not yet above peak levels. Risky practices exposing specific lenders and their investors to losses; other lenders will be similarly exposed if they chase market share.
ABS Practices and Factors i
Credit enhancements such as excess spread, overcollateralization and subordination continue to create a buffer from riskiest lending practices. Investors have not yet felt the sting of riskiest practices.
Auto Market Risks i
New vehicle prices are at all-time highs, but sales incentives and high supply of off-lease vehicles are depressing used vehicle prices, accelerating depreciation and driving up negative equity on trade-ins. Advances in technology will likely accelerate depreciation further.

Joseph Cioffi contributes to Blueshift Research’s report featuring an in-depth look into subprime auto loans from a diverse range of industry perspectives, including, new and used car dealerships, repossessors and finance companies. Regarding the inevitable comparison to subprime mortgage lending, Joseph notes, “Large financial institutions were making large bets in that market. It was a widespread phenomenon. The subprime auto loan market may become a very large problem for a more contained market. It doesn’t carry the systemic risk of the subprime bubble.” Click here to view the full article.