Facing what is described by some as the worst crisis in more than fifty years, US financial institutions are tightening their credit policies for high-risk borrowers. (3/19/2008)
In a recent article written by Tobias Ryberg for Berg Insight, Mr. Ryberg stated,
"One of the markets that will come under increasing scrutiny is sub-prime vehicle finance. According to the National Independent Automobile Dealers Association (NIADA), US$75.8 billion in used car sales were financed through independent auto dealers in the US during 2006 as Grade C paper or lower - otherwise known as sub-prime. Securities linked to these debts are exactly the kind of assets now shunned by investors worldwide.
Fortunately, cars are unlike real estate in that they were never expected to appreciate in value. Therefore, providers of vehicle financing loans are less concerned about the underlying value of the mortgaged asset than about receiving payment installments and interest on time.
That could become a major problem when dealing with borrowers with poor credit, and even more so in times of economic recession.
One of the main challenges is to persuade the car owner to pay the vehicle financer before other debtors. This is where telematics technology comes into play.
The increasing used of cellular GPS tracking for monitoring mortgaged vehicles adds a new dimension to the term “remote asset management”. Creditors are provided with the ability to track down or simply cut off the ignition for non-paying car owners. When faced with sanctions, delinquency rates among sub-prime borrowers have been seen to fall substantially.
In the long run, the new technology may also enable novel business models where car-owners pay by the mile instead of a fixed monthly fee. "