Credit-market stresses are moving from mortgages to auto loans, the Wall Street Journal reported Thursday. About 4.5% of 2006 auto loans to top-rated borrowers were at least 30-days delinquent in September, up from 2.9% in August, the biggest one-month jump in at least eight years. A full 12% of subprime borrowers were delinquent, the highest level since 2002 and up from 11.1% in August. "The numbers will get worse for auto loans," said Dan Castro of GSC Group. "We're starting to see signs of rising losses, and delinquencies are creeping up."
The strain on home borrowers pinched by rising rates on adjustable-rate mortgages may be compounding the problem, though few in the industry forecast that auto-loan defaults will attain the crisis level currently witnessed in home loans. One key difference between the two is that investors took home loans in order to speculate on rising real-estate -- a bet that backfired -- and something impossible in the auto-loan industry. Similar to the debt bundling common with mortgages, $89 billion of auto loans were packaged and resold to investors in 2006; auto-debt is the biggest debt-asset class after mortgages and credit cards. Estimates are that the market has shrunk 19% to $69 billion in 2007.
Any debt concerns could damage the already-hurting auto industry if lenders begin tightening loan terms in fear of defaults. U.S. auto sales are already down 2.5% in 2007. AmeriCredit (ACF) and Capital One (NYSE:COF) are two of the biggest U.S. subprime auto lenders. Ford's Ford Credit (NYSE:F) and GM's GMAC Financial (NYSE:GM) tend to shun subprime auto loans.
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