The US sub-prime mortgage crisis is about to make life hard for major car makers as people who cannot make payments on their houses stop paying off their car loans or leases as well, a senior investment banker said at an industry gathering.
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“The first thing I stop paying is the leasing payment for my car as well. If I default on (a mortgage), why should I pay the other things?” Klaus Pflum, who heads Nomura International’s auto sector team, said at the Reuters Autos Summit. “It will hit exactly the same bracket of people.”
A wave of defaults would push down the resale value of used cars and make the financing arms of big US carmakers write down the value of their assets, he said.
“If we bring the repurchase value down by 10% that has tremendous impact on the balance sheets of GMAC, Chrysler Financial Services and Ford,” Pflum said.
“These cars were already sold with heavy discounts so you suddenly have a completely new dimension to it. I see this will be a huge issue.”
Reuters noted that General Motors a year ago sold a majority stake in its financing arm GMAC to a consortium led by buyout group Cerberus Capital Management LP.
Cerberus also bought a majority stake in Chrysler and its North American financing business this year from Daimler.
