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    Rise In Automotive Sales Has Some Analysts Worried


    William Maley

    Staff Writer - CheersandGears.com

    October 15, 2013

    On the face of it, sales for new vehicles haven't been better. Total sales for new vehicles could reach 15.5 million this year and some analysts believe that 2014 will see total sales reach 16 million vehicles. But with increase in sales, warning signs are appearing in automotive loans and leases which could put an end to the increases.

    Automotive News that the average loan length has gone up to 65 months (about five and a half years). While the longer length means a lower payment, it also means that many consumers will still be in the process of paying their old vehicle off when they decide to buy a new one.

    Also seeing a rise is the amount of subprime loans. During the second-quarter of this year, subprime loans accounted for 27.4 percent of loans made. That's an increase of two percent when compared to the same time last year. Now the good news is that delinquent loans (loans that three months or more overdue) are low and haven't increased with the number of subprime loans.

    Analysts worry that the gains gotten by 'easy credit' could easily tumble if interest rates are raised. That could lead to slower sales, increased inventory, and the piling on of incentives.

    Source: Automotive News (Subscription Required)

    William Maley is a staff writer for Cheers & Gears. He can be reached at william.maley@cheersandgears.com or you can follow him on twitter at @realmudmonster.

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    I understand why analysts would (and should) be concerned with a high number of subprime loans. There is one thing they are not counting on: everyone needs transportation and public transportation thorughout most of the USA is not very good. (Compact cities do not count.) If there is another nasty recession where jobs are really scarce, expect all other expenses to be cut back except for car loan payments. There might be some more delinquent loans and even a few more repossessions, but it may not be that bad.

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    There are a lot more sub-prime buyers who've had problems over the last 7 years who have stabilized over the more recent term. These weren't particularly risky people, but just got caught in the economic downturn and have some credit blemishes for it.

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    they figure the risk of someone defaulting on a few hundred bucks a month is a lot less than that crazy home loan they would have been given 9 years ago.

    they want to keep sales up in the car market too, and not depress it permanently. I think it may be one of those deals where if you can breathe you will be able to get some kind of credit for a car loan. Maybe just not new all the time.

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