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Subprime Auto-Loan Crisis Near? U.S. Government Wary Of Risky Car Loans

Subprime Auto-Loan Crisis Near? U.S. Government Wary Of Risky Car Loans

The auto industry has been exploding, but it's not all good news. Thanks to the proliferation of auto lending by the big manufacturers, which have topped $1 trillion, the U.S. government is becoming increasingly wary of risky auto loans.

According to a CNN Money report, "The Office of the Comptroller of the Currency cited ‘unprecedented' growth in auto loans, rising delinquencies and shrinking used car values."

Earlier in the year, Fitch ratings (one of the "Big Three" credit ratings agencies) reported that seriously delinquent subprime auto loans have reached the highest level since 1996.

Related Link: Auto Loan Delinquencies Have Eclipsed 2008 Levels And They're Secured Just Like Home Loans

This is coming at a time when car sales hit an all-time high in 2015 and are expected to top that record this year. Furthermore, auto loans are up 40 percent since 2009, as some banks have lowered their underwriting standards for car loans to compete for market share.

Car manufacturing giants Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) are trading at historically low P/E levels, at 6 and 4.5 respectively, which may indicate future risk despite record auto sales.

If an auto loan bubble does occur, it is likely to have less of an impact than the mortgage crisis that experienced in 2008, since the car industry makes up a much smaller portion of the lending industry than mortgages do. Another positive: Banks are also much stronger now than they were eight years ago.

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