There is so much bad news out there that I thought I might start a little bit of optimism porn to counter the pessimism porn that is becoming so common.
So here is your first dose of optimism porn: the used car business is holding up surprisingly well. This was mentioned in the Federal Reserve’s Beige Book – but also in the Manheim index of used car prices at auction. This index spiked up last month!
The biggest single determinant of losses in a subprime auto finance book is not loss rate – it is severity – the loss after the car is auctioned. I am not about to buy non distressed auto securitisations or anything – but if you want to play in the distressed stuff this is clearly good news.
John
PS. One comment from below deserves highlighting:
that is great news. anyone in NY want to buy a 2003 mazda protege with 55k miles really cheap? i bought it to commute to my hedge fund job and don't need it any more.
Yes, one should also note that default rates in auto securitisations have held up so far and very very few of them got downgraded (and even those that did, got re-graded mainly due to counterparty exposure to the Detroit 3 rather than due to default problems). So, this is a relatively healthy segment of the markets.
ReplyDeletethis can be spinned as bad news as well, no? i wonder what the price trends are, instead of sales trend. i bet the price trends would show deflation.
ReplyDeleteThat is a price trend and it is doing just fine.
ReplyDeleteIf you need a pessimistic explanation it is that the supply of used cars - usually trade-ins - has declined.
J
On a completely different note, seen this?
ReplyDeletehttp://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090306005273&newsLang=en
As I understand it, Swedbank can now make up their own asset valuations.
that is great news. anyone in NY want to buy a 2003 mazda protege with 55k miles really cheap? i bought it to commute to my hedge fund job and don't need it any more.
ReplyDeletethis isn't bullish or bearish....just an anecdote...
ReplyDeleteanecdotally, wholesale used car values tend to rise around tax refund season as people use refunds as a downpayment for their car.
yeah, i don't consider this as bad news since people who can't afford to buy expensive cars can now own one for cheap.
ReplyDelete