Analysts fear subprime problems will spill over into vehicle loans

11/23/2007

DETROIT - Rising delinquency rates on car and truck loans have some industry analysts concerned that subprime mortgage troubles could spill into the automotive finance business.

In a note to investors this week, Lehman Brothers analyst Brian Johnson said his analysis of auto-loan-backed securities sold by Ford Motor Credit Co. and GMAC Financial Services showed some higher delinquency rates for October and September compared with recent years.

Spokesmen for both Ford Motor Credit and GMAC said the businesses had slight increases in delinquencies in the third quarter, but those were unrelated to the subprime mortgage problems.

Subprime mortgages are home loans to borrowers with tainted credit histories. Such loans caused credit markets to seize up in August on concerns about plunging home prices and missed mortgage payments.

Nearly 2.3 million subprime mortgages are projected to reset at higher rates, and correspondingly higher monthly payments, through the end of next year.

John Casesa, managing partner for the Casesa Shapiro Group, an auto industry financial advisory firm, said the mortgage woes are certain to spill into car and truck financing.

"The only question is how big a worry it is," he said.

Mr. Casesa said that if the problem persists, it could further drive down auto sales, because as adjustable mortgage rates go higher, homeowners will have less liquidity available to buy cars and other big-ticket items.