Automakers are on track for their best U.S. sales year since 2006, but the growth of long-term loans, many to buyers with dicey credit scores, and a surge of leased cars that will return to dealers by 2017, could create problems down the road.
Last Monday, automakers reported selling nearly 1.3 million new cars and trucks in October, an annual pace of 16.5 million, a level not seen since the peak of last decade’s housing boom.
Low interest rates, modest but steady job growth and low gas prices have combined to make auto sales the brightest showcase of an otherwise tepid recovery. People are paying prices high enough to offset the cost of rebates and other incentives. Industry profits here at home are large enough to cover losses in other parts of the world. Life is good.
Yet a substantial portion of this growth is fueled by three trends, any of which will reveal just how well the industry learned the lessons of 2009.
First, the average length of a new car loan is now 67 months, the second-longest ever, according to Edmunds.com. Second, leasing once again accounts for more than 25% of all new vehicle transactions, the highest level since the Great Recession. Finally, auto finance companies, banks and credit unions are approving more subprime loans to people with checkered credit histories.
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