Car sales have hit record levels in America, helped by record lending, says Serena Ng in The Wall Street Journal. The total volume of American car loans has hit a new peak around $1trn. And where there’s record lending, as we learnt in 2007, there is often careless lending.
As with subprime mortgages, car loans are often bundled and sliced and diced into new securities. “Bonds backed by auto loans made to riskier borrowers [have] proved to be a sweet spot for yield-seeking investors” in today’s low-rate environment, says Bloomberg.com’s Tracy Alloway.
But it now seems “the chickens [are] coming home to roost”. Credit-ratings agency Fitch says that delinquencies have hit a 20-year high; 5.2% of borrowers are over 60 days late.
Analysts have dismissed fears of a subprime car loans bubble bursting because the economy is strong – but then subprime mortgages started to weaken before growth turned down.
Subprime car-loan-backed bonds are only worth $27bn in total, and may not pose a systemic threat, but the sector has produced a nasty blast from the past.