Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know.
1st Gear: ‘Deep Subprime’ Loans Are Becoming The Norm And Everything Is Fine, Just Fine
Investors are starting to get a bit nervous because over one-third of the car loans that are bundled into bonds are “deep subprime” loans, meaning they were given to consumers with credit scores that are usually below the 550 FICO range. In the past, these folks were generally able to keep up with their payments, but delinquencies have been steadily rising. Automotive News reports:
Consumers are falling behind on most subprime car loans, but deep subprime borrowers have deteriorated fastest, the analysts said. Sixty-day delinquencies for bonds backed by these loans have risen 3 percentage points since 2012, compared with just 0.89 percentage points on all other subprime auto securities, Morgan Stanley’s Vishwanath Tirupattur, James Egan and Jeen Ng said in a report dated March 24.
This means that lenders and investors are taking unexpected losses on these risky loans. The story goes on:
This month, however, S&P acknowledged that losses are building across the board — in prime, subprime as well as deep subprime. It revised its loss expectations for a wave of bond issuers of auto debt to reflect a new view that many deals may end up seeing losses far greater than initially expected.
Analysts at S&P said in a March 20 report that quite a few companies are increasing provisions for loans, which “has caused some formerly profitable companies to become unprofitable,” while some newer companies continue to try to break even.
While there’s often talk of some impending subprime auto loan bubble, those predictions tend to be a bit overblown. However, if lenders and investors continue to incur losses in the subprime sector, that could mean higher interest rates and tighter restrictions for car buyers in the near future and that can have an overall negative impact on the auto sales market.
(This gear contributed by Tom McParland)
2nd Gear: Used Cars Are Losing Value And Hertz Rental Car Is Feeling It
What happens when you’re a rental car company sitting on a huge inventory of used cars, and the value of those cars tanks? According to Bloomberg, the answer to that is “A market freak-out,” because that’s what the news site says happened when the National Automobile Dealer’s Association showed a huge drop in their used vehicle price index in February—apparently “the biggest for any month since November 2008.”
Bloomberg sites an analyst from Boston’s Susquehanna Financial Group, who say investors have responded to the drop in used car price index with panic, dropping Hertz shares by 20 percent over the past week (though it’s worth mentioning that concerns about lender Ally Financial and Ford Motor Company’s outlook also contributed to investors’ unease). The news site went on discussing why Hertz is at more risk than other rental car companies, saying:
Hertz is seen as being more exposed than rental-car rivals like Avis Budget Group Inc. to the price slump because its turnaround plans call for selling off an outsize number of aging cars and updating its vehicle fleet.
Those used car values are a big concern, apparently, and the CEO even has some doubts, with Bloomberg writing:
Chief Executive Officer Kathryn Marinello, a newcomer to the car-rental business, faces doubts that Hertz will emerge unscathed from the value of its vehicles depreciating at a faster rate than a year ago.
As for the rest of us, we’ll keep an eye out on dirt-cheap former rental cars. I can think of one from Hertz that I wouldn’t mind in my own fleet.
3rd Gear: Opel Senior Managers Could Make Huge Bonuses Off GM Sale
Senior managers at Opel, the brand that General Motors sold to France’s PSA group earlier this month, could be the lucky recipients of huge bonuses, Automotive News reports. The news site cites German magazine Manager Magazin, writing:
Germany’s Manager Magazin reported that nine top managers at Opel could collectively share between 20 million and 30 million euros subject to the deal going through.
That’s likely over $1 million Euro each, and that big chunk of cash doesn’t require the senior managers to stick around with the company, either, so if they just want to take off in a private jet to a private island, they’re free to have at it. Lucky dogs.
4th Gear: India Suddenly Bans Sales Of Certain Vehicles With Lower Emissions Ratings, Screwing Automakers With Unsold Inventories
The Indian government has said for years that automakers must meet Euro IV emissions standards by April 1 of this year, but it never said the sale of current Euro III vehicles would have to cease. Now it’s done just that, and Reuters says automakers with unsold inventory are feeling the hurt.
The news site says there are more than 800,000 unsold and now unsellable Euro III-compliant vehicles out there, with a combined worth of close to $1.85 billion according to Mumbai-based Angel Broking. While the vehicles can be sold in international markets, they can’t be sold in India, because the court says the health of the nations citizens trumps financial concerns of companies.
Reuters quotes the president of the Society of Indian Automobile Manufacturers Vinod Dasari as saying:
Days before the deadline, they said you cannot sell...I don’t think this much inventory can be sold off in the next couple of days.
Damn, India, that’s cold.
5th Gear: Daimler Speeds Up Electric Goal
Blame Dieselgate, Tesla or whoever else you want: automakers, especially the German luxury ones, are going hard on electric cars. Daimler is now moving up its timetable for EVs in the Mercedes family, reports Automotive News:
Daimler says it expects to bring more than 10 new electric cars to the market by 2022, bringing forward a goal it had previously set at 2025.
The automaker unveiled the Generation EQ concept at the Paris auto show last year as the first of 10 SUVs, sedans, and compacts that are planned from 2019. The models will be part of a lineup that Mercedes-Benz will market under a new subbrand, EQ.
The expedited time frame reflects the urgency facing automakers as they brace for a shift away from traditional automotive technologies. Combustion engines would continue to be refined for a “transitional period,” Daimler said.
Will anyone buy them?
Reverse: Rick Wagoner Gets The Boot From The U.S. Government
Neutral: Why Is Everyone Going ‘Deep Subprime’?
New cars too expensive, on average? Americans have bad financial habits? The post-recession recovery isn’t all it was made out to be? What the heck is going on here?