Impending Recession May Be 'Closer Than You Think,' Economist Says | Auto Finance News | Auto Finance News

Impending Recession May Be ‘Closer Than You Think,’ Economist Says

canstockphoto23814374-e1460735420219PLANO, Texas — Subprime consumers are behaving “a little more subprime” as the labor market stabilizes and consumer confidence continues to rise, but impending recession risks may be on the horizon, according to Cox Automotive’s Chief Economist Tom Webb.

“If you were a subprime borrower in 2006 to 2008 that would mean you habitually did not pay your bills,” he told attendees at the Non-Prime Auto Financing Conference Thursday. “Whereas in 2010, you probably got caught up in the housing crisis.” Many consumers’ credit scores were “more than dinged,” he added.

If a consumer does not have a good payment history today — more than six years into post-recession recovery — this would suggest that the subprime consumer is “probably getting more dicey” and behaving more like a true subprime consumer, Webb added.

Employment has grown by 12.3 million over the past six years, he said. “Total employment did get back to its previous peak,” which gives consumers the confidence to take out an auto loan and lenders the confidence to provide them with that loan. “Therefore, their portfolio is performing extremely well because they haven’t had shocks in unemployment. The stability in the labor market has certainly enabled [lenders] to provide credit for consumers to pay those loans back,” Webb said.

Additionally, Webb predicted the “favorable financing environment” will run “a while longer,” but an impending recession may be on the horizon. “I think recession risks are outside of our control. No one can ever put a timeline on when those things come to a head, but I think it’s getting a lot closer than people think.”

The middle of next year “may prove problematic in terms of where we are in the industry,” Webb said, because if the auto finance industry doesn’t accelerate “it’s going to go the other direction.” The industry is not expected to continue growing at such a rapid rate year over year; “it’s got to go one way or the other,” he added.

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