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All That Glitters In Auto Sector Threatened By Subprime Crisis

The fanfare of new model reveals, breakthrough technologies, better build quality and life-saving safety features, are the highlights of today’s automotive industry.

Despite a roaring comeback from the dark days of the financial crisis … in the margins, analysts and financial journalists have been loudly whispering about the looming threat of a subprime auto bubble that could pre-sage, or even trigger a recession.

According to a recent report by the New York Federal Reserve, more than 7 million auto loans are over 90 days past due — signaling a serious problem with consumers scrambling to cover their monthly bills.

This potential crisis has been brewing for a few years and last year raised red flags when the 60 day delinquency rate in auto loans surpassed the rates during the depths of the 2009 financial crisis.

With the auto industry accounting directly or indirectly for up to 7% of US GDP, there is no way to downplay this development.

The metrics of sheer volume that drives the auto industry repeatedly takes us into this dangerous terrain. Easy credit, manufacturer incentives and car dealer come-ons boost annual sales totals at a serious risk to market stability.