Is subprime auto finance a financial-disaster-in-the-making?
Well, according to NPR’s “All Things Considered,” it is. The public radio organization last week sounded the subprime auto finance alarm (hear the segment below), joining a growing chorus of such claims (see here and here).
The NPR report doesn’t add much, although it does feature noted economist Mark Zandi saying that the situation requires vigilance:
“I wouldn’t send off red flares at this point, but I think we should be shining a very bright light on practices in the industry just to make sure that things are being done properly so that this does not become a problem in the future,” Zandi says.
Regardless of whether subprime lending has gone the way of the mortgage industry — which is extremely hard to believe — Zandi does point out that the auto finance industry is “a lot smaller than the mortgage market.”
At least NPR got that right.
As for The New York Times, today it lamented the influx of capital into auto finance.
Across the country, there is a booming business in lending to the working poor — those Americans with impaired credit who need cars to get to work. But this market is as much about Wall Street’s perpetual demand for high returns as it is about used cars. An influx of investor money is making more loans possible, but all that money may also be enabling excessive risk-taking that could have repercussions throughout the financial system, analysts and regulators caution.
It also took some serious swipes at Santander Consumer USA Holdings Inc. as a sort of poster child for auto finance companies expanding rapidly at the expense of consumers. If you are a lender, this is not a good read.
