US car loan delinquencies have climbed markedly in recent months, raising another potential red flag for financial institutions and the automotive industry.
"We are beginning to see deterioration in auto asset-backed securities (ABS) credit conditions," Lehman Brothers said in a report yesterday, drawing on data from two of the US's biggest car finance companies - GMAC, 49 per cent owned by General Motors, and Ford Credit, two of the biggest lenders.
Delinquency rates on two GMAC ABS issues from earlier this year reached about 0.75 per cent and 0.6 per cent in September and October, far above the rates on similar securities issued in earlier years.
Tom Webb, chief economist at Manheim Auctions, added that the number of repossessed vehicles at the company's used-car auctions had risen, reflecting an uptick in delinquencies and a larger number of contracts.
Mr Webb said he was not "overly concerned" about default rates among car buyers, given continuing low unemployment.
Nonetheless, he said growing caution among lenders had led to higher interest rates on car loans. Tighter lending terms and higher repossessions could further dent vehicle sales at a time of already soft demand.
Brian Johnson, Lehman's automotive analyst, added: "It's not a disaster yet; it feels like 2002 or 2003." He warned, however, that with unemployment rates at a low of 4.7 per cent "it only has one way to go".
A Morgan Stanley report warned yesterday that tightening credit conditions and higher petrol prices could push car and light-truck sales below the 15.9m units currently forecast for 2008. Sales are expected to dip to 16m units this year from 16.6m in 2006.
The motor industry has eyed nervously the subprime mortgage meltdown for signs of the turbulence spreading to high-risk automotive loans. Home equity loans have been a major source of financing for new vehicle purchases, creating the potential for another damaging ripple effect.
According to Oregon-based CNW Research, subprime loans made up nearly 13 per cent of automotive financing last year, up from 9.4 per cent in 1999.
GMAC reported that overdue US loans pushed its worldwide auto-loan delinquency rate up to 2.53 per cent of retail assets in the third quarter, from 2.29 per cent in the previous three months and 2.47 per cent in the same period last year.
The increase, bringing the delinquency rate to its highest level in at least three years, was ascribed to "seasonal and economic factors". But actual losses were "well within historical levels", and lower than last year and 2005.
Wells Fargo, another big vehicle-finance provider, reported a $57m increase in car-loan losses from the second quarter, but a $32m decline from July-September 2006.
