Filed under: Bad news
The Wall Street Journal headline says it all: “Lax Lending Standards Could End Up Fueling Sudden Acceleration in Auto-Loan Delinquencies”.
It makes perfect sense and could even be worse than the subprime home lending crisis in terms of its impact on the industry. Because taking out a car loan is pretty rarely a savvy financial move — and people tend to use them to buy cars they really can’t afford — the industry may be especially vulnerable to an economic slowdown. Irresponsible borrowers are more likely to take out car loans than home loans, and also more likely to walk away from them. And there isn’t going to be any federal bailout to help fast food workers keep their Escalades.
Analysts report that delinquencies in car loans rose sharply in late 2007. Consequently, it’s important to look at the possible exposure any automotive-related company you invest in has to credit problems. Some companies do their own financing, others don’t. A quick look at the risk factors disclosed in the 10-Ks filed with the SEC may provide some clues.
Continue reading Are car loan lenders about to get crushed by bad loans?
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