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Jamie Dimon says there's stress in the auto-loan market — but there's a problem with that

jamie dimon The US auto market has been booming for years, but you wouldn't know it if you follow the stock prices of Ford, General Motors, and Fiat Chrysler Automobiles, all of which have offered tepid returns to investors.

This is confusing to auto executives, but not to analysts, who have collectively been anticipating some type of financial, economic, or simply cyclical event to affect US auto sales since, oh, about 2013.

The idea seems to be that if you foretell of a downturn for long enough, one will eventually happen, and you can say you were right all along.

The latest fixation among these bears is what's going on in the market for subprime auto loans. Bankers like JP Morgan Chase CEO Jamie Dimon aren't wrong when they say the market for U.S. automobile lending is "a little stressed," as he did on Thursday.

Defaults among risky borrowers are ticking higher, reaching about 5% recently, according to Fitch Ratings. This after an expansion of subprime loans, with loans terms stretched out past the usual five years, lowering monthly payments but leaving some borrowers potentially "upside down" on their loans, or owing more than the car is worth.

"'Someone will get hurt in auto lending,' but not JPMorgan, Dimon, 60, said Thursday during an investor presentation in New York," Bloomberg's Hugh Son reports.

Wall Street hates a plateau

car dealer Kimberly White/Getty Images

But just what a "little" stress for subprime lenders means for auto sales isn't exactly clear primarily because borrowers with poor credit aren't typically buying new cars. They're buying used ones.

Now, you could argue that there's a chain of events that follows trouble in the market for securitized subprime loans. It looks something like this: defaults in the asset backed securities mean investors stop funding new subprime auto loans, which means used car sales plunge, which means new car buyers can't offload their old vehicle before they buy a new one.

What's more likely is that, for many reasons, the US auto market has plateaued. For the carmakers this still means relatively stable demand going forward, as older cars are retired and new cars are purchased.

The question investors should be focusing on now is which of the carmakers has the discipline to navigate in a plateaued market. The wise car companies will concentrate on steady profits, laying in cash for the inevitable downturn and keeping up with R&D investment. The unwise car makers will discount their prices, through incentives, and degrade profits in an effort to capture market share.

And most auto lending will chug along just fine. The automakers probably have a few more years of a 17-18 million US market to work with.

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