Photo: AFP/Robyn Beck

Auto loans outstanding rose from $700 billion in 2007 to $1.1 trillion in 2017, and credit standards have deteriorated. As banks tighten credit standards for new auto loans, the volume of loan demand has begun to drop, putting pressure on overall auto sales.

The rating agency Fitch warns that this may crush used car prices and put further pressure on loan quality:

“Fitch expects that deteriorating credit performance will be more acute in the subprime segment, driven to some extent by the expansion of less-tenured independent auto finance companies that have demonstrated higher-risk appetites and less underwriting discipline. … NADA’s Used Vehicle Price Index, which measures wholesale prices of used vehicles up to eight years old, declined over 6% in 2016 and was down 8% year over year through February 2017, marking the eighth consecutive monthly decline. Used vehicle prices were down 1.6% sequentially in February, reflecting the sharpest monthly decline for the index since November 2008 and a seasonal anomaly for February.”