Subprime Auto Loans: Did we learn something from the 2008 Financial Crisis?

Low Interest Rates are beneficial because they boost consumption but on the other side this may create asset bubbles.

One of the main beneficiary of the low interest rate regime has been company working in the Automotive Industry.

Low interest rates means lower monthly payment for the consumer and, especially  here in the USA, the majority of the population have taken advantage of it as you can see from the Auto Sales Trend in the chart below.

Now that Interest Rates are going up, we see the first sign of stress in the Subprime Credit Market for Auto Loans. It is the same story as with Home Mortgages but this time we are talking about Auto Loan. As you can see from the chart below from Fitch, the delinquencies index is higher now compared to the Financial Crisis.

This is concerning because the Financial Conditions are still "accommodative", at the end of the day the 10Y Yield is below 3% which in normal conditions would be a very low rate.

We have to remember that "bad deals are made during good times" and monitor the delinquency rate during the next months.

The same applies to credit card debt where the average American has around 6,000 USD that they decide to carry into the next month, with a punitive interest rate of 20-25%.