New York — It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the US housing market circa 2007. It’s the US auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5bn of new subprime auto bonds were sold. In 2016, $26bn were topping average pre-crisis levels, according to Wells Fargo & Co. Few things capture this phenomenon like the partnership between Fiat Chrysler Automobiles and Banco Santander. Since 2013, as US car sales soared, the two have built one of the industry’s most powerful subprime machines. Details of that relationship, pieced together from court documents, regulat...
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