Nearly one year ago, we wrote about auto loan delinquencies’ potential impact on the automotive industry. Now, car sales are falling and auto loan delinquencies are making headlines again, with a growing number of subprime loans falling into default. UBS reports that subprime default rates are reaching levels consistent with those just prior to the recession.

Although experts agree that this will not trigger the next recession like the housing crisis, the views differ on how this will impact the auto industry and consumers. One outcome is that the availability of credit for certain categories of auto purchases may tighten. In fact, Experian showed the number of subprime loans written in the first quarter fell to a 10 year low. Yet the overall auto loan business is booming, with car loans hitting record numbers earlier this year.

It could also impact investors’ views of the companies making these loans. A recent report by UBS recommended limiting corporate debt exposure in “autos, auto lenders, rental car companies, credit card lenders, and non-bank providers of consumer loans and mortgages”. Wells Fargo similarly reduced its exposure to auto loans in early July.

Companies making subprime loans are also facing increasing levels of government scrutiny, with recent reports on state attorney general investigations and lawsuits. The recent UBS report also revealed that one in five borrowers surveyed admitted inaccuracies in credit applications. This could lead to further investigations into the lending practices.

All in all, the auto industry is facing a steady decline in sales this year, as anticipated. It is tough to pin this decline specifically on subprime loans. But, time will tell if there truly is a direct correlation between the loans and the industry performance overall.