Lenders Shrug Off Jump in Subprime Auto Loans

Lenders tell Automotive News the rise in subprime auto loans poses no danger of a crash similar to the subprime mortgage defaults in 2008-2009.

The New York Times has pointed out that subprime auto loans often are bundled and sold as securities, just as subprime mortgages were. The newspaper has raised the specter of another subprime "bubble" and possible crash.

But lenders say the default rate on subprime car loans is considerably lower than for mortgages, credit cards and other loans. Ford Motor Credit Co. reported its repossession rate in October-December was 1.06%, its lowest-ever ratio for the period.

Analysts note that subprime mortgage investors did not lose money during the recession or since. The main reason: Securities involving subprime auto loans are based on short-term contracts (six years or less) for depreciating assets. The housing bubble entailed much longer-term contracts (as long as 30 years) and an assumption that the home values would automatically rise.