Market Overview

9 Headlines That Suggest Subprime Auto Loans Are Becoming A Big Deal

9 Headlines That Suggest Subprime Auto Loans Are Becoming A Big Deal

Some investors are wondering why the market is punishing Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) despite their solid quarters (GM’s EPS beat estimates by more than 20 percent). The answer just might that some headlines so far this year are sounding the alarm of the phantom menace that are subprime auto loans.

A subprime auto loan is one made to a borrower with a credit score of 619 or lower. Some market spectators are crediting the boom in auto sales this year to automakers' comparatively lax requirements for consumers credit.

Here are nine headlines featured by Benzinga this year highlighting the issue:

  • January 8 - Record Auto Sales Fueled By Debt, Likened To Subprime Mortgage Market By Regulators
  • January 13 - Auto Industry In Largest Credit Bubble Ever, Morgan Stanley's Jonas Warns
  • February 25 - The Auto Loan Market Is Beginning To Look Like 2008's Housing Bubble
  • February 25 - Subprime Auto Leading 2016 ABS Issuance (ABS stands for “asset-backed securities”)
  • April 7 - Auto Loan Delinquencies Have Eclipsed 2008 Levels, And They're Secured Just Like Home Loans
  • May 19 - Money Borrowed By Car, Truck And SUV Buyers Tops $1 Trillion For First Time - CNBC's auto expert Phil LeBeau noted a "slight increase" in borrowing by subprime credit individuals. The percentage of loans considered to be delinquent also ticked "slightly higher."
  • June 2 - Jamie Dimon Warns About Auto Loans As They Hit New Record Highs
  • July 13 - Subprime Auto-Loan Crisis Near? U.S. Government Wary Of Risky Car Loans
  • July 19 - Wedbush Analysts Note Weakening Subprime Auto Loan Performance Posing Threat To CarMax Inc (NYSE: KMX) The auto loan ABS subprime sector delinquencies worsened month-over-month and performance deteriorated year-over-year in net losses, recoveries and delinquencies. The analysts were very clear they didn’t not see a 2008-style credit meltdown, but said that credit is contracting.

    While all the auto loan subprime talk may be what’s turning investors off about auto stocks, it’s not likely to be a macro-economic type of headwind in the way the mortgage credit crisis was back in 2007-2008. Investors may also be weighing the impact of used car inventory and ride-sharing on new car sales.


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