Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.
About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.
I was about to write that the auto loan industry wasn'y playing the same shenanigans with auto loans so that while this was reflective of broader problems with the economy it wouldn't necessarily be a cause of additional problems.
Oops.
Many auto loans undergo the same Wall Street financial engineering as the mortgage loans that stand at the center of the credit crisis, making this a potential issue for investors. Auto loans often are bundled together into securities, sliced and diced into pieces with varying levels of risk and return, and sold to investors around the world.
In 2006, $89 billion of auto loans were packaged into asset-backed securities and sold to investors, according to Standard & Poor's, making it the biggest asset class for such securities next to mortgages and credit cards. That tally doesn't include certain other types of securities backed by car loans. The market is now slowing. Deutsche Bank estimates such bundling was down to $69 billion during the first 11 months of this year, a 19% drop from the same period last year.
A much smaller shitpile, but a shitpile nonetheless.