The boom in U.S. sub-prime auto debt is a looming concern for U.S. regulators, but the problem is apparently not contained to the U.S. The FT reports that borrowing for cars in the U.K. is also booming. The auto debt on bank balance sheets is still small relative to the size of bank assets in the U.S. and U.K., so a systemic crisis probably isn’t something to be overly concerned about today. If you start to see an explosion in CDOs and synthetic CDOs, then you can start to worry.
But economists and some in the industry are worried about what is going on under the bonnet of the used car market. Consumer borrowing has grown sharply in the UK, and a lot of it is being spent on cars that are bought on short-term contracts and resold. A healthy used-car market is a vital part of this economic chain.
Things are calm on the surface. Glass’s Guide — an industry bible — has been publishing figures on the UK’s used-car market since 1933. It says the market has been consistently strong in the past few years.
Consumer habits are changing
“However, the detail is the key,” said Rupert Pontin, director of valuations at Glass’s. Newer used-cars are losing more of their value and more quickly. A used car that is less than two-and-a-half years old is worth 57.6 per cent of its original value, down from 61.1 per cent in 2014.
“This is likely to continue to be the case for the rest of 2017 and into 2018 as well,” he said, as more cars come off the three-year credit deals they were bought with and that have been wildly popular with UK consumers.
Read more here.
Jeremy Jones, CFA
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