All That "Auto Loan Disaster" Chatter?

It's not exactly "chatter."  But there's a lot less to it than the DoomBunch will admit.

When you sell sub-prime cars and finance sub-prime borrowers, s**t WILL happen.

Here's the picture for US Auto Sales, a chain of dealerships with its own finance biz.

What about those loans??

Because specialized subprime is the slimy underbelly of the auto business, and it always gets a lot worse when you look at it more closely. According to a report by Kroll Bond Rating Agency, cited by Bloomberg, the loans in the ABS issued in 2022 had:

• Average FICO score of 518 (620 and below is normally subprime)
• Average LTV (loan-to-value ratio) of over 150% holy-moly!
• Average loan amount: $20,199. With 150% LTV, it means the vehicle was worth $13,500 at the time of the sale.
• Average interest rate: 18%.

In short, if you wanted to design auto loans to blow up and do a lot of damage, that’s how you’d do it.

PE firms, auto dealers, investors, bond funds… they all get into subprime auto lending because of its high yields. It’s a hugely profitable business until investors suddenly catch the heat

That's the second one to blow itself up....

...In late February, American Car Center, which had over 40 subprime-focused dealerships around the country, and which was owned by PE firm York Capital Management, suddenly shut down a day after it was forced to scuttle a $222 million bond sale....

Now, then.  Ally, a major car-finance outfit closely associated with GM, announced that they are upping their loan-loss reserve AND tightening credit standards.  They'll still issue $40BN or so in leases and loans this year..........which tells you that The End Of the World As We Know It ain't here yet.