GM/Ford Credit Risk Surges To 2 Year Highs As Fitch Raises Auto Sector Concerns

Tyler Durden's picture

With the feds probing Deutsche Bank's exaggerating Auto ABS demand, car dealerships suing automakers for being forced to channel-stuff, direct evidence of massive channel-stuffing with near-record inventories-to-sales, and sales now beginning to tumble after last month's weak credit growth, it is perhaps no wonder that Fitch has raised the warning flag about automotive vehicle and parts makers...

As we demonstrated last week, the cracks are already starting to show.

Sales slowing dramatically...


Inventories continue to soar...


And that has not ended well in the past...


And now Fitch raises concerns:

Automobiles & parts companies five-year Credit Default Swaps (CDS) have experienced notable widening recently, according to Fitch Solutions in its latest case study.


CDS on automobiles & parts companies have widened 11.5% on average over the past week (22.4% over the month), underperforming the 6% widening observed for the broader consumer goods industry last week.


Auto companies domiciled in North America saw the most spread widening (14% w/w, 31% m/m), followed by European autos (11% w/w, 16% m/m) and Asian issuers (3% w/w, 12% m/m).


"The increase in market scrutiny over the auto sector likely stems from overall jitters relating to China's economic slowdown and the potential impact on demand for autos and parts," said Diana Allmendinger, Director, Fitch Solutions.

In fact Ford is at its highest credit risk in over 2 years and GM getting close..


But it's not just F and GM...


And we detailed previously, it would appear that demand for auto loan ABS may be beginning to dry up as investment banks are forced to engineer an artificial buzz around new deals in order to keep skeptical investors from demanding sharply higher yields. 

As a reminder, if the market for auto loan ABS stalls (so to speak), it will trigger a chain reaction all the way down to the dealers who will suddenly care about the creditworthiness of borrowers again.

Once that happens, the US auto "miracle" will suddenly disappear in a cloud of noxious tail pipe exhaust as the one reliable "driver" of consumption in America is exposed for what it is: a castle built on subprime quicksand.

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Yen Cross's picture

  But the blowhorn told me that the U.S. consumerburger fliper has plenty of money for 10-year interest only NINJA subprime auto loan.

FireBrander's picture

Breaking Election News!


Jeb BUSH is SURGING in the polls now that Lindsey Graham has thrown his support behind Jeb causing a STUNNING 25% surge all the way to 5%!

Go, Jeb, GO!

Now, if he can get Huckabee's and Santorum's support, Jeb just may break 7%! Yahoo! Momma Bush was wrong!


Minions's picture
Minions (not verified) FireBrander Jan 15, 2016 7:58 PM



ThaBigPerm's picture

Honda transmission took a shit.  Have a backup for the time being, but I've been telling a few friends to hold some dry powder - in a year or three you'll be able to pick up a mildly used repo for pennies on the dollar, or even better a brand new one for pennies on the dollar (Silver Eagle?) what with all the lots that'll be overflowing with repos on the one hand, or new unsold inventory on the other.  Assuming we don't get a Cash for Clunkers 2.0 where they crush 'em all.  Broken windows and all that.

Abbie Normal's picture

Honda may build a decent vehicle but their transmissions, especially on the V6 SUVs and minivans seem to have a half-life of 3-6 years.  Maybe they need to outsource that part to ZF or even GM.

TheDanimal's picture

Their manuals are fine, it's just the autos that they don't give a fuck about cause they're Japanese.

Mr Pink's picture

This is starting to look very familiar.....bailouts around election time?

Mark Mywords's picture
Mark Mywords (not verified) Mr Pink Jan 15, 2016 7:09 PM

You betcha! Why not? It's tradition!

buzzsaw99's picture

why bother buying gm bonds seeing as how you will be converted to equity the minute things get dicey?

nmewn's picture

Car Czars all around! It's the Fascist way!

Bangin7GramRocks's picture

Why would you ever buy bonds in a shit company that should be bankrupt? All of those bond holders would've been wiped out anyway if the company died. Easy thing to remember. Don't buy bonds in shit companies and shit countries and you won't have to worry about socialism and blah, blah, blah.

nmewn's picture

Well, the way "it's supposed to work" is, senior bond holders have (used to have BY LAW) their the company...backed by the collateral of the company.

That is to say, the land, the factory, the equipment (all of it) make...a car.

Without that collateral they never would have loaned the company the money they were asking for in the first place. The government forced them to take less than the contractual, agreed upon price for a default in paying them back.


End of story.

I never want to hear another fucking word about "law". I know what it is and what it is not. 

If I'm ever "elected" dictator-boy-king heads will roll.

Mr. Universe's picture

Short Auto bond derivitives for 100 Billion Alex

Bangin7GramRocks's picture

Dictator Boy King has a nice ring to it. I hear ya about the "law". It doesn't exist anymore and that was my point. Can't buy risky ass bonds and think the law will get you your money back.

nmewn's picture

When promises turn to lies, when contracts turn to toilet paper, when law turns to tyranny...then we know what must be done.

Bangin7GramRocks's picture

Hell yeah! Sign and drive a 96 month no money down loan on a beautiful new $65,000 Yukon Denali. USA! USA! USA!

nmewn's picture


Without making the first payment, cuz only one side of the contract is expecting a monthly payment.

Thats how one can identify...the sucker ;-)

silverer's picture

Send the toilet paper to Venezuela?

Navymugsy's picture

Sorry but anybody stupid enough to buy GM bonds after what happened last time deserves to have their head handed to them.

Counterbalance's picture

Good weekend to buy a car?


FireBrander's picture

It's always a good time to buy a car! I stongly suggest you buy now because they may pull back on production and prices will skyrocket! Don't get priced out!

Abbie Normal's picture

Do you also sell used houses part-time?

mgbkurtz's picture

What about CPSS?  Stock has been hammered lately... Canary in the coal mine?

Barnaby's picture

This after Ford said it was going to be Big in China in 2016.

I like my Ford products. I love my Focus. Am I to assume we're going to see something really radical here? Like a Ford Focus AWD answer to the Evo? Because I would buy that in a millisecond.

FireBrander's picture

"Low Cost" players are moving in to undercut the high car prices....TATA is coming from India and Elio Motors USA has sold all of it's First year's production before even building a single car!

Barnaby's picture

I would very much like an Indian-style car built for the expanse of American roads. I so enjoy driving here in Colorado, and the perfect speedster would hit the mark.

Do I pray to Vishnu?

Freddie's picture

Stick with the Ford - try this Fiesta with AWD and 650 bhp.

Too much power?  This Ford Fiesta AWD for WRC probably puts out 400 bhp.  I love WRC cars.

Winston Churchill's picture

You may want to consult an atlas.India is big as well.Cars designed to survive travering

the grand trunk roads there need to be reliable and tough.

TATA will be a serious player.

Freddie's picture

The Elio is pretty cool.  GM and the Obola UAW can eat sh*t.  They were bailed out once already.  F em.

yellowsub's picture

The big 3 got bailed out directly or indirectly to the tune of billions...

Seasmoke's picture

Cash for Cars 2.0. (clunkers not needed)

franzpick's picture

Didn't we just go thru auto credit collapse 8 years ago? Maybe history does repeat itself: The first time as tragedy, the second time as the new iFarce ES1000.

FireBrander's picture

$52,000 for a new 4x4; and they sell hand over first thanks to "affordable" 7 year payment plans...


There's a HUGE Chevy dealer not too far away that sits way lower than the road, so as you drive by you can look down on it and see all of the cars...several hundred for sure...the place is packed to capacity...they even park overflow inventory in the parking lot of a vacant office building across the street. Drive by on a Saturday and the customer lot is always full.

There's a CarMax lot about a mile away, opened ~5 years by it all the time and I've NEVER seen thier inventory at capacity..always 1/3 to 2/3 full of cars...either they can't get enough cars or they just sell them that fast. Place is a ripoff though; took my car there for an appraisal, they offered less than a dealer and I thought the dealer was trying to fuck me.

yellowsub's picture

Car dealerships got wised to CarMax profitable business and decided to keep the good ones to recondition as certified used and then auction or sell off the non-profitable ones.

silverer's picture

No.  We didn't just go through it.  We are still digging out of it.  And now we're preparing to add to it.

Farmer Joe in Brooklyn's picture

Welcome to Fight Club, Mr. Fitch....

Navymugsy's picture

I bought my last vehicle at the depths of the auto crash in December 2007 and got a hell of a deal. Paid cash for it and haven't looked back. Maybe the time for a new vehicle or slightly used luxury ride is starting to show itself?

cljsf's picture

What data is that Automotive Inventory-to-Sales chart showing? It seems to stop mid-2015 and I can't find data on Bloomberg that matches it. The BEA data series starting in 1967 and seasonally adjusted shows inventories down from a recent peak back in February 2014.

nodoctor's picture

One of the Detroit Three just pulled a sizable bit of production from their near term build schedules. Not yet announced. Targeted at cetain models so it makes sense, but when times are good they don't care so much about any overbuild.

There is going to be a race to channel stuff like mad in the next few weeks. February is truck month after all.

silverer's picture

I think I'll go buy an expensive GM or Ford car with no money down and stop making payments.  It's the right thing to do.  (Just following the example of US leadership, buying things with money they don't have).