Auto Loans

Anonymous Survey Finds Reports of Subprime Auto’s Health Are Greatly Exaggerated

May 29, 2019 | By JOSEPH CIOFFI

“There will be time, there will be time
To prepare a face to meet the faces that you meet”
- T.S. Eliot

It’s not uncommon for the privacy of a setting to imbue a conversation with candor, and for the public situation to lead to prevarication. Remember all the folks who stated publicly they could never vote for a certain Presidential candidate, and yet . . . here we are.

Diverging statistics in various reports (a recent example being the difference between the latest NY Fed Household Debt and Credit Q1 report noting 90+ delinquencies trending upward since 2012 and Fitch Indices report showing subprime and prime auto 60+ delinquencies have fallen since January and are only slightly higher year-over-year for subprime) and polarized opinions in trade publications led us to conduct a survey of nearly 100 industry insiders, including originators, investors, servicers, trustees and others. The generally upbeat sentiment of insiders in the press in the face of doomsayers led us to make the survey anonymous.

The results of the survey can be found in our market study, Participants’ Expectations Point the Way to the Future of Subprime Auto, and they do not disappoint.

We received candid responses from participants covering a 360-degree view of the market on matters such as expected loan performance and whether credit enhancements will remain sufficient to obtain and maintain desired credit ratings.

We found that more than 60 percent of each constituent market group – and 70 percent of all participants – believe that loan performance will deteriorate in the near future, nearly 80 percent believe credit enhancements will need to rise and 64 percent believe credit rating downgrades will occur.

This can actually be viewed as a beautiful thing – market dynamics in action. With this information, participants now know their colleagues’ expectations and that knowledge can be used collectively to acknowledge concerns over risk and move the market to greater levels of protections and avoid disruption.

Already, it seems though there is another option – one can choose to ignore the anonymity and implicit candor of the responses and instead report on and view the study through the lens of polarizing discourse, in which case the study provides nothing more than an opportunity to hammer the “there’s nothing to see here, move along” narrative.

That would be an opportunity lost for those who choose that road. Although 30 percent of participants believe performance may not deteriorate and 21 percent believe credit enhancements will not need to increase, they are in the minority. If the majority’s expectations move the market, those who don’t anticipate the shifts could be left in the dust.

Download the market study here.

Nicole Serratore, an Attorney, in the Insolvency, Creditors’ Rights & Financial Products Practice Group of Davis & Gilbert, contributed to this post.