As we’ve been outlining over the last few weeks, the auto-loan industry is increasingly looking like Subprime 2.0: the needle that will pop the credit bubble.
Since 2009, roughly 1/3 of all new auto-loans have been subprime. That in of itself is bad, but we are now discovering that the industry in general has a problem with fraud (shades of the Housing Bubble) as well. Remember, the real Housing Crisis was when contagion spread from subprime mortgages into the prime space. It looks as though there might be a similar situation in autolending today.
As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.
Source: Bloomberg
Obviously, the auto-loan bubble is nowhere near as large as the housing bubble ($1.2 trillion vs. $14 trillion).
But I’m not saying auto-loans will be the crisis… I’m saying auto-loans will be the needle that triggers the crisis.
Since 2009, the Fed has created a massive bubble in debt securities.
This includes:
1) Municipal Bonds
2) Corporate Bonds
3) Mortgages
4) Consumer credit debt
5) Auto-loans
Here it is in all its glory.
Just as housing was a small percentage of the debt build up to the 2008 crisis, auto-loans are a small percentage of the post-2008 debt buildup.
But both asset classes had fraud and subprime lending as an underpinning.
This is Subprime 2.0: the needle that will burst the debt bubble.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research