Thursday, June 19, 2008

Is Automobile Credit Crisis in Future Waiting....

Over the past one year, we have seen the housing mortgage crises afftecting US economy badly. It has eroded 25% of the US housing market capital, made big investment banks go almost bankcrupt and much more. Not only in US but it has also effected credit market elsewhere in the world. Have you wondered why we could not see this ? Well don't wonder now as hindsight is always clearer.

Can we think of any credit crisis in future ??? Can we see it coming ???

I don't know if I'm thinking in the right direction. Its a long shot as foresight is much harder. Everybody is worried about Crude and Gas Prices. Have you ever imagined what if Crude actually goes past $200 or may be $250 in a year. With Obama coming to white house, the tax breaks for oil companies would be gone. The gas prices will hover around $7-$8. With a economy already in a bad shape, will people be able to afford such highly priced fuel? Yes, for sometime ofcourse. What happens next.

The Big Bang !! Alternate sources to fuel !! May be electricity or Fuel Cells !! Nobody is going to drive the existing automobiles. Not because they dont want to but becuase they can't afford to drive.

What happens to automobiles on mortgage or loans. People will start doing the same what they did with their houses. They will start to default. It makes sense to default as the rate of interest of the loans is high, the gas prices will be high and an automobile is a depreciating asset.

Who will take the loss ?? What happpens Next ??

The automobile companies or banks confiscate the vehicles. The cars go back either to manufacturer or the financial institution. Its will be difficult for all of them to sell those vehicles again. Who's going to buy them ? Now the main question - Where do they get their money from ?? Is it credit crisis for the bank or Manufacturer ??? Who will be worst affected ?? How much will Automobile loans rate of interest shoot up ?

The other side of the story can be - with Middle Eastern countries increasing the production, the crude prices might go down. Alternate sources fuel are also big threats for such countries as they do not have anything other than oil to support their economy. With US economy comes out of the current recession soon and with commodities market cooling down , things might get better again. Another reasoning to this not happening in near future so sharply can be that automobiles are not as big liability as houses are. The automobile liability is usually around one-fifth of the housing liability. So people can bear with the existing vehicles for a time being or start using public tranport or gradually start moving over to other sources of fuels. I don't know if this will actually happen but its a big possibility.

Neither I can't dare to close my eyes on it and nor should you !!

will catch you guys later again ....

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