With the feds probing Deutsche Bank's exaggerating Auto ABS demand [9], 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 [10], the cracks are already starting to show.
Sales slowing dramatically...
[11]
Inventories continue to soar...
[12]
And that has not ended well in the past...
[13]
And now Fitch raises concerns [14]:
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..
[15]
But it's not just F and GM...
And we detailed previously, [9] 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.
