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Auto Finance :: Auto Finance: Another Subprime Bubble?

Credit risk has built up from rapidly escalating lower quality loan exposure, coupled with artificially high auto and related sales enabled by easy credit.

The first signs of deterioration have appeared: delinquencies and repossessions are increasing already.

The most direct way to play is to short lenders exposed to subprime auto loans. Shorting companies benefitting from auto sales and discretionary vehicles works as well.

Conn's offers an example of what could happen.

It is past Halloween, yet we still see the ghosts of subprime stalking unsuspecting investors again. Is the auto finance market a replay of the home loan subprime bubble on a smaller scale? We see a buildup of credit risk from rapidly escalating lower quality loan exposure, coupled with artificially high auto and related sales enabled by easy credit. The first signs of deterioration have appeared: delinquencies and repossessions are increasing already.

Some of the companies we see as most exposed are Santander Consumer US (NYSE:SC), TCF Financial Corporation (NYSE:TCB), LKQ Corp. (NASDAQ:LKQ), CarMax (NYSE:KMX), Lithia Motors (NYSE:LAD), and similar financing driven discretionary companies such as Harley-Davidson (NYSE:HOG) and Winnebago (NYSE:WGO). These and other names will be highlighted further in this piece and in a subsequent article.

Source Article : http://seekingalpha.com/article/2644185-auto-finance-another-subprime-bubble

Posted by Matthew Wadham | on