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Strategies & Market Trends : Value Investing
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To: robert b furman who wrote (57759)8/12/2016 4:29:20 PM
From: Micah Lance  Read Replies (2) of 78927
 
"There is a great shortage of used vehicles in today's auto auctions and value are sky high.

A wave of repos would be generously greeted by dealers struggling to keep a nice front line of used vehicles."

The Kelly Blue Book second quarter market report talked about that: "This could indicate that manufacturers and rental companies are choosing to hold on to inventory, rather than oversaturate the market and risk a drop in vehicle values."

The subprime auto loans are being propped up by used car prices. If they can repo the cars and get back their capital they're ok, however if Kelly Blue Book is correct and the prices are being held up due to lower amount of cars being auctioned then some of those loans might not have the amount of collateral that they thought depending on the drop in used car values. As of right now, this doesn't seem like an issue but dealer incentives are starting to tick up. In the DFW area Chevy and GMC are offering up to 20% off MSRP on some of their vehicles.

As far as I can tell Ford hasn't been dealing with subprime loans, however I could have missed it. 60% of GM's loans are subprime. They're all securitized into asset backed securities and sold off. That's where I stopped in my research. I didn't look at any other car companies either.

Question for all relating to this. When a loan is securitized and sold, who holds onto the risk? Obviously if the bond becomes worthless, the bondholder loses their capital but is that it? Would a company like GM suffer losses if their assets that backed the loan become worth significantly less than anticipated?
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