Colonnade publishes industry commentary on below-prime auto finance.
First things first: The below-prime automobile finance sector is not a source of systemic risk to the U.S. banking system or the global economy. This segment of the consumer lending market simply isn’t big enough to create the next 2008-style financial crisis. According to the Federal Reserve Bank of New York’s February 2016 Report on Household Debt and Credit, auto loans accounted for just 9% of total household debt outstanding. Auto loans only comprise 3% of household debt nationwide. In contrast, home mortgages constitute 68% of total household debt. Commentators that equate the current situation to the mortgage crisis are not thinking clearly.
Nonetheless, the below-prime auto finance sector remains a favorite villain in media reports. Even comedians are piling on – British comic John Oliver of “This Week Tonight” recently roasted the industry. Mr. Oliver’s piece was not balanced, but it did generate some laughs.