“Between the March 2009 bottom and the January 2018 peak, of course, they were essentially buying the dips—-about 50 of them with material dimension. The short-run narrative constantly changed—low interest rates, escape velocity ahead, synchronous global reflation, Goldilocks once more—-but the mechanic was always the same.”
“May 2nd marked the anniversary of the Loch-Ness monster legend. Science has not been able to document the creatureâ€™s existence, yet the fable perpetuates. Similarly, the media has promoted irrational nervousness about the auto lending market, with little-to-no foundation.”
“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 â€œsharing economyâ€â€” exemplified by companies such as Zipcar, Uber, Lyft, and Viaâ€”makes deeper inroads into the transportation sector).
” However, the chart masks the growth of â€œdeep subprimeâ€ 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 weâ€™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).”
“Weâ€™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 (Februaryâ€™s drop was largest recorded for any month since Nov. 2008).”
“The stronger performance of auto loans partly reflects the fact that the loans are collateralized, and also likely reflects the fact that many US borrowers prioritize auto debt in their payment sequencing.”