Some thoughts on subprime auto bonds

Subprime Auto Bonds From 2015 May End Up Worst Ever
Yikes. The title says it all. But, let’s consider the economic implications of auto sales for a moment. As you can see below, total vehicle sales had one final hurrah in 2015.

total vehicle sales

Similarly, auto inventory to sales declined significantly since the end of 2015; indicating that dealers were pushing cars out of the door after filling up on inventory.

auto inventory to sales

Two major points come from this. 1) Historically speaking, a decline in auto sales almost always precedes a recession. 2) 2015 in particular saw a significantly push to get cars out of the door at all costs. It appears dealers stocked up on inventory in anticipation of a strong economy in 2015-2016. Creditors – many of which are incorporated into auto companies – followed suit and relaxed their standards for loans to meet the need to sell cars. This combination led to poor loans and creditors and investors in 2015 vintage auto bonds will bite the bullet.

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