Century of enslavement: the history of the federal reserve (october 2022)
Following news earlier this week that U.S. Auto industry sales fell 6% in may, JP morgan chase & co. (jpmjpmorgan chase & co98. 75-2. 01% created with highstock 4. 2. 6 ) CEO jamie dimon, in a meeting with investors on thursday, warned that the market for car loans "a little stressed". "While investors were sure JP morgan chase was safe, dimon predicted that competing banks would likely see higher losses.
The latest drop in sales for the month of may follows the best year on record for auto sales. US car sales reached 17. 47 million vehicles for the whole of 2015, a figure that breaks the previous record of 17. 41 million hired in 2000. (to read more, see: ford may auto sales disappoint. )
While low fuel prices and moderate economic growth have been cited as reasons for the boom, easy credit, especially for subprime borrowers, can't be ignored.
In 2015, the average funding of a new auto loan rose to nearly 28.000 dollars, the highest level since march 2008, when the federal reserve began collecting such data. Much of the growth in auto financing is led by subprime auto loans, which, as of march, set a record 20. 8% of the new car loan market made.
The "stress" in the auto loan market that dimon mentioned undoubtedly refers to the rise in delinquencies among subprime borrowers. According to fitch ratings, while the rate of defaults on subprime auto loans fell a slight relief in march to 4, 15%, this decline comes after the rate hit a 20-year high in february of 5. 16% reached.
The rate of annualized net losses in march was also 30.4% higher month-over-month than the same period last year. Fitch cited lax underwriting standards as one of the causes of the rise in subprime auto lending, and this rise in subprime lending is expected to further increase delinquency and loss levels. (to read more, see: subprime auto loans: what borrowers should know. )
The bottom line
The spike in subprime auto loans combined with rising payment rates and now falling car sales sounds like an episode that began almost 10 years ago.
While some believe the differences between the auto market and the housing market raise concerns about a new financial crisis, the situation could become problematic if large-scale defaults put downward pressure on automobile prices, making it difficult to resell repossessed vehicles. From lenders who try to recoup losses.
While noting that JP morgan is safe, dimon was quoted as saying, "someone is going to get hurt in the car loan process."