A question and some interesting observations came in today from reader “FW” who works at Ford. He asks about shorting the auto sector including auto-backed collateralized loans.
Hi Mish
A few years ago while going through Khan Academy I stumbled on his series of videos about cause of financial collapse. It was a revelation to me. Ever since I have been looking for for an alternative sources of financial information. That is how I found your blog. I have been reading it almost every day. Thank you for your opinions and knowledge.
I work as an electrician for Ford Motor Co. I have been with the company for 15 years. Two contracts ago Ford and UAW agreed to a 2 tier wage system. Which means that Ford can hire new production workers at $15-$17 per hour rate rather than $23-$25 rate (approximate rates).
I notice that whenever we have a large group of new hires few months later I see number of new vehicles on company’s parking lot. I assume that most of the new cars belong to the new hires. It also seems to me that most of them did not have the best credit and had to finance the loans for the long terms. If the car sales take a down turn contractually this new hires would be the firs to be laid off. Seems to me like a big risk.
Questions
- Do auto-backed loan securities exist?
- If so, do they look similar to the mortgage CDOs?
- Is there a way to short them for somebody with limited financial abilities?
Sincerely
FW
Answers
Recall that it was hedge funds who took the opposite side of mortgage CDOs in leveraged ways. Indirectly, one might look for companies that engage in subprime auto loans and short them. That is possible but certainly not a recommendation.
In fact, for someone with limited financial means, I would not recommend shorting at all. It is very difficult to short successfully.
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