Used-Car Boom Breeds Record U.S. Bond Bets, Concern Over Risk, from Bloomberg Business.
Auto-finance companies are issuing record amounts of bonds backed by leases as used cars retain their value like never before. With the supply of second-hand vehicles now poised to rise, it’s raising concern that risks are building.
Sales of securities backed by car leases have already surpassed $6 billion this year after a record $16.4 billion were issued in 2014, data compiled by Bloomberg and Wells Fargo & Co. show. As everyone from automakers to mutual funds wagers on how much cars will be worth when the leases expire, the size of the market has more than tripled since 2008.
The concern is that the expansion is underpinned by a shortage of used cars that a widely followed forecaster says will begin to reverse this year. That would threaten to depress car values and increase the risk of losses for lessors including Ford Motor Co., General Motors Co. and Ally Financial Inc. should they fall more than estimated.