Dear mainstream financial media: are you trying to make Citi’s Mary Kane lose her fucking mind? Because that’s what it seems like.
“May 2nd marked the anniversary of the Loch-Ness monster legend. Science has not been able to document the creature’s existence, yet the fable perpetuates. Similarly, the media has promoted irrational nervousness about the auto lending market, with little-to-no foundation.”
Those who frequent these pages are well-versed in the ongoing auto ABS debate. See the thing is, a whole lot of people are interested in shorting subprime auto paper. With the possible exception of CMBX 6, auto ABS is at the top of the list when it comes to “the next ‘Big Short’ candidates.” One…
I want to preface this by saying that I may just be an idiot here and God knows it wouldn’t be the first time.
“…it’s not wise to believe everything you see in a movie and hit films are not the best source for trade ideas.”
“Of course, this only accounts for the direct hit to the economy. There would be incremental pain from spillovers into auto-related parts production, transportation and trade. Moreover, such weakening in auto sales would be an indication of broad-based deterioration in consumer sentiment, which could ripple through the economy.”
Longer term, the risks to these estimates are probably on the downside, especially if the “sharing economy”— exemplified by companies such as Zipcar, Uber, Lyft, and Via—makes deeper inroads into the transportation sector).
” However, the chart masks the growth of “deep subprime” lending programs, targeting borrowers with credit scores far below the 620 cutoff. For example, some recent deep subprime ABS transactions featured pools with average credit score of just 545, with 20% of borrowers not having a credit score at all, a condition known to signal high default risk.”
“There are a number of negative implications from what we’re observing, including rising negative equity in new car loans, lengthening ownership cycles, tightening credit, and potential for deteriorating mix/pricing (And we see risk of continued deterioration as used vehicle prices remain under pressure, and new vehicle inventories remain elevated).”
We’ve been pounding the table on subprime auto and the extent to which that odious debt has been embedded in the system via Wall Street’s securitization machine for as long as this site has been around. For instance, in “As Subprime Auto Bubble Bursts, Lenders Use GPS To Hunt Deadbeat Borrowers,” we drew your attention…
“We’ve noted individual automakers increasingly engaged in aggressive discounting. GM is suddenly standing out in this regard with incentives up $1,350 per vehicle.”
“We’ve grown increasingly concerned about U.S. Used Vehicle Pricing down 7.7% yoy during February, per NADA. A decline in used prices has been widely anticipated given a significant increase in used vehicle supply (off-lease vehicles). But the magnitude of the recent drop was nonetheless surprising (February’s drop was largest recorded for any month since Nov. 2008).”
As regular readers are no doubt aware, we’ve been pretty keen on documenting the bubble that is subprime auto loans. In “As Subprime Auto Bubble Bursts, Lenders Use GPS To Hunt Deadbeat Borrowers,” we drew your attention to “DriveTime” and “Credit Acceptance,” highlighting the rather unnerving fact that both companies “have been using technology like ignition…
Over the past several weeks, I’ve documented what looks to be the beginning of the end for the subprime auto bubble. For the most comprehensive treatment, I suggest you have a look at “As Subprime Auto Bubble Bursts, Lenders Use GPS To Hunt Deadbeat Borrowers.” The short version is that there are a whole host…
We’ve got ourselves a subprime problem…
