I agree Ian: that's the way I understand it. Its believed the book value of the cars post hand back will be significantly less than those held in the financial accounts. So it's large corporate right downs being hinted.
Yes, but where will those write-downs occur?
In the US auto market, which is structurally different to that in Europe, it is commonplace for all the major carmakers/importers (Ford, GM, Honda etc) to self-finance auto-loans using their own balance sheets. Growing awareness of this aspect of balance sheet vulnerability probably accounts for their relative share price underperformance.
In Europe/UK the underwriting of car finance is outsourced to banks or (bank-owned) credit houses, so rising loan default rates will whack banks' balance sheets and share prices, and also asset values of pension funds and other financial institutions who have bought bonds or other collateralised debt issued by by car-loan lenders. In other words, there will be systemic impacts that are broader than write-downs from individual banks and other lenders.
I think this type of 'credit correction' is inevitable. People take out a PCP thinking that their income will rise and make it more affordable - but in the UK we are in an era where structural factors mean real incomes are stuck/declining. And whilst rising base rates won't directly impact typically fixed rate PCPs, they will hike mortgage rates and make more people financially distressed. Repo men are going to be very busy.
