Auto Industry In Largest Credit Bubble Ever, Morgan Stanley's Jonas Warns

With the broader markets in decline on Wednesday, auto stocks General Motors Company (NYSE: GM), Ford Motor Company (NYSE: F), Fiat Chrysler Auto (NYSE: FCAU), Delphi Automotive PLC (NYSE: DLPH), Honda Motor Co Ltd (ADR) (NYSE: HMC), Nissan Motor Co Ltd (ADR)(OTCMKTS:NSANY) and Tesla Motors Inc (NASDAQ: TSLA) are all in the red.

Aside from concerns over China and rising interest rates, auto buyers' increased reliance on credit is one potential warning sign. As Benzinga wrote last week, 2015's record auto sales were fueled by debt and are being compared to the subprime bubble by some regulators.

Now, almost 86 percent of new auto sales and 56 percent of used sales are supported with debt financing, up from 80 percent and 47 percent in 2010.

Top Analyst: Current Auto Credit Bubble May Be Largest Ever

Speaking to analysts and industry professionals in Detroit on Wednesday, Morgan Stanley's Adam Jonas echoed this sentiment. The industry is in need of "creative thinking," he said, according to Matthew Dolan of the Detroit Free Press.

Jonas threw "cold water" on the auto industry's efforts to transform itself, Dolan added, explaining that he didn't believe rising fuel economy standards would be met by industry leaders.

More concerning, Jonas said the industry is amid its largest auto credit bubble ever, and recommended watching auto loan repayment history and cheap credit availability for clues of a coming downturn.

Apple, Google Are Coming; Tesla Hasn't Been Disruptive Yet

According to Dolan, Jonas also warned auto industry execs that Apple Inc. (NASDAQ: AAPL) and Google/Alphabet Inc (NASDAQ: GOOG) competition is coming.

He added that Tesla hasn't yet been disruptive when discussing expensive electric vehicles' impact on traditional automakers thus far.

Jonas currently holds a Buy rating on Tesla with a $450 price target. He holds Sell ratings on both Ford and GM, and has a Buy on Fiat Chrysler.