Securitized Deep Subprime Auto Loans have increased from 5.1 percent in 2010 to 32.5 this year according to Morgan Stanley. Auto loan delinquency rate is at a record-breaking high in seven years.
The auto loan market has an outstanding debt of $1.16 trillion all sectors combined. A quarter of this debt is owed by subprime consumer sector.
The subprime auto debt of $179 billion, 16% of the total auto loan debt, according to TransUnion Data. “Third parties have flagged that auto delinquencies are at or close to record levels. However, it needs to be recognized that delinquencies are high in absolute terms because lending is at an elevated level.” Arndt Ellinghorst, George Galliers, and Chris McNally published in a research. “Delinquency rates do not look concerning and, in fact, remain at very low levels.”
Investors’ Fear Mounts Up
The recent murmurs of the next subprime crisis create fear among investors. The drastic increase in the auto loan defaults has gotten many investors alarmed.
Because the outstanding auto loan debts have reached an all-time high, investors worry that this will affect the whole debt industry. Analysts, however, see that this problem hit the debt market but it won’t be too big to have the whole financial system crippled. These trends of data, still, should not be looked over by investors.
Subprime Auto Problem Isn’t Stopping Soon, Won’t Affect Overall Financial System
The problem with the subprime auto loans won’t stop soon, but analysts say that this may be limited to the subprime market. This is because the prime industry is now better positioned, this offsets the current situation the subprime auto sector is experiencing.
These high-rated borrowers, though, will also be affected by the negative values in the subprime sector. This, JPMorgan Chase (JPMo) Chief Economist Jamie Dimon released a comforting statement saying that although a serious problem is present, it isn’t too big to affect the overall economy. JPMo still continues to be cautious and observant of these trends in the vehicle values.