Frank McKenna, lead strategist at Point Predictive, told Bloomberg that auto lenders’ losses from deception could surge to $6 billion this year:
“We see an extraordinary amount of parallels between the auto and mortgage industries, in terms of the rising levels of hidden fraud,” McKenna said. For home loans, it’s hard to know how widespread the deception was before 2009, because lenders often didn’t report information to one another and may not have even investigated incidents of probable lying much on their own, McKenna said.
Because the auto loan industry is so much smaller than the mortgage industry (about $1 trillion versus over $14 trillion), investors shouldn’t be worried about a contagion event that could take down the entire financial system. However, specialized auto lenders and the carmakers themselves could be at risk, because if and when the bubble bursts, demand for car loans — and lenders’ ability to write them — would likely plummet as well.
Earlier this month, April auto sales were reported to be down 4.7% from the prior year, missing estimates and sending automaker stocks lower.
The First Trust NASDAQ Global Auto Index Fund (NASDAQ:CARZ) was trading at $36.33 per share on Wednesday morning, up $0.03 (+0.08%). Year-to-date, CARZ has gained 5.55%, versus a 7.12% rise in the benchmark S&P 500 index during the same period.