Jim Chanos's Fear of Cars

If there's one thing the recent news flow has shown, it's that there are lots and lots and lots of things to be scared about, in financial markets and beyond.

Famous short-seller Jim Chanos suggests there's something people should add to the list: auto loans. Some lenders are doling out loans worth as much as 125 percent of used-car values, and that "should scare the heck out of everybody,” Chanos said on Wednesday in an interview with Bloomberg TV's Scarlet Fu.

Indeed, bubble chasers have been watching auto loans -- especially the subprime variety, which makes up almost a fifth of the debt -- and warning of consequences for a while now, drawing comparisons to the subprime mortgage bubble that caused the last financial crisis. As is often the problem with bubbles, spotting them is one thing -- accurately predicting when they'll burst is another. Still, it's become harder and harder to look at the numbers without wondering if this could end badly, and when.

Delinquency rates are increasing as auto-loan amounts and payments reach record highs for new-car loans, according to a recent report from Experian. Adding to the risk, the terms for loans have grown longer -- reaching 68 months for new cars, according to Experian. And an increase in the popularity of leasing cars -- 31 percent of new vehicles in the first quarter -- is fueling concerns of a supply glut that will drive down prices, making auto loans riskier in the same way that falling home prices made mortgages riskier during the financial crisis.

It all has resulted in brokerages receiving an "explosion in calls" from hedge-fund managers looking to short asset-backed securities containing car loans, as Bloomberg's Matt Scully reported a few months ago. But there's a problem: The trade is almost impossible to pull off because banks aren't exactly interested in being counterparties and there's a lack of derivatives to bet against pools of car loans.

So where are the shorts going to turn? Well, there's always an equity lurking somewhere.

Short-sellers have focused on the shares of companies considered most exposed to an auto-loan bubble, such as Credit Acceptance Corp. and Santander Consumer USA Holdings Inc. Short interest on both remains elevated despite year-to-date declines in the stocks of 21 and 34 percent, respectively.