https://www.pistonheads.com/gassing/topic.asp?h=0&f=23&t=1662342
Yes. The serious risk is that the bond holder is leveraged so their 10% bond value hit transpires to be a 100-200% hit. Their lender gives them a margin call and they default, thus the counter party carries the loss. Enough of that and the counter parties then start to struggle to handle the losses.
The risk to manufacturers is that a sudden change in bond pricing could be a toxic shock to their business model that sees them unable to react quickly enough to pass the cost down the line to the consumer or for the consumers to stop buying their credit. The balance sheets of the manufacturers are not exactly robust. They are all heavily laden with debt, the cost of which would likely be raised to reflect their weaker economic status etc.
The other issue for manufacturers is that having converted the entire retail consumer action into monthly debt consumption and quick rise in retail financing costs would arguably see huge and rapid changes in what the consumers are purchasing with their fixed monthly packages. Such changes would almost certainly occur quicker than a manufacturer could change its direction. For example, will consumers keep buying the same model of car but drop all the options or drop down the model range or move to cheaper brands. Any of those changes present a very big hit to manufacturers if they happen quicker than they can react.
The key thing is that consumer debt has been put on the tabloid front pages and on the desk of the regulators before it is a very serious risk and so now we just need to see if there is a response or if it is ignored. What we do know is that consumers cannot self regulate so they will keep consuming until they implode or the system implodes around them so it must be the lenders who must be steered and the bond holders so that whatever happens it is not another problem for the taxpayer to fund.
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