What’s Driving The US Auto Boom——Debt, Debt And More Debt

To be sure, we’ve made no secret of our views on the state of the US auto market.

This year, we’ve written extensively about the proliferation of subprime lending, worrisome trends in average loan terms, and, most recently, we noted the astounding fact that in Q4 2014, the average LTV for used vehicles hit 137%.

We presented what perhaps marked our most unequivocal statement to date on why the market looks dangerously frothy in “Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance.” In that post, the absurdities plaguing the US auto market were laid bare for all to see. Here’s a recap:

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

It’s against this backdrop that we bring you the following three charts from BofAML’s H1 review of trends in the ABS market. As you’ll see, below, the move towards riskier lending is quite clear.

First, note that auto ABS issuance is set to hit record highs in 2015.

Next, consider that the percentage of prime loans backing new supply is now at an all-time low.

Finally, here’s a look at the percentage of new financing extended to non-prime borrowers. As BofAML observes, the prime segements are losing share.