Cautionary subprime auto lending headlines have been splashed across the media lately, starting with a now-infamous New York Times article from mid-July. But Elen Callahan, director, Deutsche Bank, reminded attendees of the 2014 Auto Finance Summit why the current subprime auto market is not comparable to the mortgage market that led to the 2009 global recession.
Most notably, Callahan said, while mortgages had highly adjustable rates, and an average term of 40 years, cars are depreciating assets with shorter terms. The average amount borrowed for a home is $200,000, while for an automobile it’s only $15,000. Callahan also reminded the audience that customers are likely to pay their auto loan before their mortgage.
“When you see this kind of regulatory headline risk, and spread softening on ABS, there is less demand for that paper, which may make it slightly cheaper,” Callahan told Auto Finance News. “We see it as an opportunity to buy.”
