Lenders Brace for Fallout From Gulf Coast Oil Spill

Auto finance risk executives have their eye on the Gulf of Mexico as energy giant BP scrambles to cap a leaking oil spill.

At least 210,000 gallons of oil per day have leaked into the Gulf since a BP-owned oil rig exploded April 20. BP has yet to devise a viable plan to contain the oil slick.

Trouble capping the gusher could hammer lenders on both the front- and back-end, resulting in higher gas prices or local job losses, said Ken Gang, head of consumer credit at Hyundai Capital America, during a panel discussion at the Auto Finance Risk Summit last month. Should gas prices skyrocket, consumers would shy away from buying “gas guzzlers” like trucks and sport-utility vehicles, much like they did when gas cost more than $4 per gallon in mid-2008. At the time, the sudden demand for compact cars forced truck and SUV prices at auction to plunge. The result: Lenders took big hits on certain repossessions and off-lease vehicles.

So far, though, the price at the pump has remained fairly stable, inching up $0.05 to an average of $2.96 per gallon, according to the U.S. Energy Information Administration.

Meanwhile, job losses could translate to higher delinquency rates for lenders. Already, the unemployment rate is hugging 10%. Further job erosion could extend the time required to rein in worsening loan performance.

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