Chart Check (A Dubious New Record)

On Wednesday evening, I brought you “As Subprime Auto Bubble Bursts, Lenders Use GPS To Hunt Deadbeat Borrowers.”

In it, I outlined prevailing trends in subprime auto lending and highlighted what I hope was some useful color from Morgan Stanley on the state of the market.

I also flagged some of the rather dubious practices DriveTime and Credit Acceptance (two of the worst-of-breed subprime lenders) employ in pursuit of deadbeat borrowers.

This evening, I wanted to draw your attention the following chart from Citi’s Mary Kane (a perpetual optimist on consumer ABS) which shows that subprime now makes up nearly a third of all outstanding retail auto ABS.

Via Citi

Subprime Auto ABS at Peak Market Share The securitization market continues to finance numerous subprime auto finance companies and total outstanding subprime auto ABS amounted to $41 bb, which accounted for 29% of total outstanding retail auto ABS as of 31 Dec 2016 (Figure 8), setting a new record market share. We continue to think that the subprime auto space may undergo consolidation, as there are a large number of competitors. Moreover, some of the smaller companies rely heavily on the ABS market for financing, and this could be a risk if the market backs up. Heightened regulatory compliance costs have also materialized in the last couple of years, and the sector is the subject of close CFPB scrutiny.

autoabs

Don’t worry, Mary is still upbeat. But when even she’s flagging risks, you know you’ve got a problem in the making.

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