They Never Learn: Subprime Auto Loans
(Bloomberg) — The ability to bundle car loans into securities isn’t fueling a credit bubble, said Chris Pink, a managing director at Wells Fargo & Co.’s securities arm.
About $30 billion to $40 billion of subprime car loans are held within asset-backed securities, compared with the $203 billion of such loans outstanding, Pink said today during a panel discussion at a conference in Las Vegas. While subprime volumes are growing, borrowing by the weakest-credit borrowers represents only about 20 percent of auto-loan originations, compared with a peak of about 30 percent before the 2008 financial crisis, he said.
“I don’t think you’d come away” from looking at those figures “saying it feels like the ABS market is driving a resurgence of subprime,” Pink said.
It’s only sensible to make some subprime auto loans in a recovering economy: many are still getting back on their feet and there’s a pent up demand for newer cars. The question is, what percentage of auto loans can be subprime without risking a 2008-style meltdown? I would not trust investment banks to provide the answer.