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Auto Sales Soar – But So Does Auto Loan Debt

Sub-prime lending and delinquencies raise concerns.

by on Aug.20, 2014

Sub-prime lending has sharply increased - though it remains lower than before the recession.

Car sales may be soaring to their highest levels since the depths of the recession but, in the process, U.S. motorists are running up record auto loan debts.

The combination of rising car prices and a negligible growth in wages has only compounded the problem, buyers going deeper into debt to drive off showroom lots. Outstanding auto loans hit an all-time record of $839.1 billion during the second quarter, a whopping 11.7% year-over-year increase, according to debt tracking service Experian Automotive.

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It marks the 13th consecutive quarter auto loan has increased, according to a separate report by the Federal Reserve Bank of New York. Overall, outstanding household debt was essentially flat, the Fed noted.

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Auto Sales Jumping as Banks Loosen Credit Reins

Despite rise in subprime lending, defaults at near-record lows.

by on Jul.31, 2014

Banks have loosened the credit lines and as a result auto sales are booming in 2014.

It’s becoming clear that one of the primary reasons that new car sales are booming this year is that Americans are able to more easily get credit to finance their purchases. The total amount of outstanding auto loans has increased by 10% in 2014.

According to Equifax and its National Consumer Credit Trends Report, there is $902.2 billion in outstanding auto loans, which is a new record.

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“Auto lending continues to thrive, accounting for more than 50% of all new non-mortgage lending through April of 2014,” said Dennis Carlson, Deputy Chief Economist at Equifax. (more…)

Auto Buyers Loading Up on Loans as Monthly Payments Hit Record

Buyers also extending loans to record levels.

by on Jun.02, 2014

While sales continue to rebound, consumers are borrowing more to get into a new vehicle.

U.S. auto buyers are paying more than ever and stretching out their loans to record lengths in order to make their monthly payments, according to a new study.

Consumers are also turning to leases in record levels to help cut their costs, reveals the latest State of the Automotive Finance Market, from the data tracking firm Experian Automotive.

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“Consumers are really relying on financing as the price of new vehicles continues to move higher,” said Melinda Zabritski, Experian’s senior director of automotive credit. “As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level.”

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Subprime Auto Lenders Rein Back

Shift could slow automotive recovery.

by on Apr.21, 2014

Sub-prime lenders aren't expected to leave the market, says Moody's, just pull back slightly. Image courtesy: EZAutoFinance.org.

U.S. auto sales got off to a slow start this year, and though they showed a modest rebound in March, industry analysts are questioning whether 2014 will continue to see the sort of recovery forecast for the American car market this year – especially if lenders begin reining in financing.

And that’s a possibility suggested by a new study by financial tracking firm Moody’s showing that U.S. subprime auto lenders are “exercising more caution,” especially when it comes to higher-risk customers.

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But the study does not seem to indicates a wholesale slowdown, Moody’s concluded. It points to slower growth in non-prime lending by banks and credit unions, as well as so-called “captive finance” firms operated for or by the various automakers.

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U.S. Motorists Finally Getting a Break on Used Car Prices

Prices come down even as lenders loosen credit.

by on Nov.14, 2013

Used car prices may finally have peaked after several years of at or near-record numbers.

If you’re in the market for a used car you might finally be getting good news.  Not only are prices taking a dip after several years of record increases, but automotive lenders also are loosening up credit.

The U.S. used car market is huge. By various industry estimates, it’s as much as three times larger than the new vehicle market – which would mean nearly 50 million “previously owned” vehicles will be sold for all of 2013 by franchised dealers, used car lots and individuals. The problem is that the supply dried up during the years following the American economic collapse because with fewer two, three and four-year-old vehicles ready for trade-in, demand outstripped supply.

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Now, however, with the new car market heating back up, there are more cars coming off-lease, in particular.  And a bigger supply normally translates into reduced prices.  According to data tracking site Edmunds.com, the typical used vehicle sold for $15,617 during the third quarter of this year.  That was down a sizable 2.8% from the second quarter and, perhaps more significantly, a 0.9% decline from year-earlier prices.

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August Car Sales on Track to be Best Since 2006

Demand for trucks continues to surge.

by on Aug.23, 2013

Automakers hope to wrap up the month with strong Memorial Day holiday sales.

There may be all sorts of worrying signs about the economy but you couldn’t tell that by visiting U.S. new car showrooms.  Sales in August continued to heat up thanks to strong demand for trucks and crossover vehicles – and the ample availability of financing for even riskier buyers.

New-vehicle sales are expected to increase anywhere from 12 to 14% from August 2012 when August wraps up, according to analysts from Kelley Blue Book, J.D. Power & Associates and LMC Automotive. The result is forecast to be the highest monthly sales volume since 2006 as the seasonally adjusted annualized rate is expected to reach 16 million units.

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“The industry as a whole continues to experience a robust improvement in demand, and our forecast for August is looking to be the best month for retail sales that we’ve seen in the past seven years,” said John Humphrey, senior vice president of the global automotive practice at J.D. Power.

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Detroit, Asian Makers Score Big Sales Gains for July

If anything, automotive revival could be held back by supply shortages.

by on Aug.01, 2013

The 2013 Honda Civic had its best month ever in July, breaking a 13-year-old record.

As the U.S. auto industry continues to come roaring back from the worst recession in more than half a century, car sales appear to have surged to their highest July total since 2006, automakers reported Thursday.

If anything, supply shortages and new model delays could be the only thing holding the market back from an even bigger upturn, industry officials warned, Ford and Hyundai among the makers stretching the limits of their production capacity while Chrysler bangs away at problems with the new Jeep Cherokee model it hopes to launch next month.

There are few makers who didn’t score gains during July, with industry analysts estimating that overall year-over-year sales numbers will wind up at least 15% ahead once the last few manufacturers weigh in. Detroit makers all posted double-digit increases, as did the Japanese Big Three – though Nissan’s surge was tempered by a nearly one-third drop in sales by its Infiniti luxury brand.

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Why is the market continuing to heat up? Analysts point to a wide variety of factors including looser credit, a big surge in the housing market that is buoying demand for full-size pickups, growth in small car and hybrid sales as consumers prepare for future fuel price hikes and, perhaps most importantly, improving confidence in a slow-growing economy.

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Trucks Add Momentum to July Sales Surge

But small cars, hybrids also gain ground.

by on Aug.01, 2013

The new Ford F-150 Tremor. Pickup truck sales appear to be leading the auto recovery.

Despite some signs the U.S. economy may be slowing down a bit, nothing seemed able to halt the resurgent auto industry last month, perhaps because the market’s heavy lifters, full-size pickups, were flying out of dealer showrooms.

While several major makers have yet to weigh in with their numbers, preliminary estimates suggest the month was the industry’s best since July 2006. Detroit makers – all three of whom posted double-digit increases — were particularly pleased by the monthly trends, demand for trucks apparently being driven by a housing market revival.

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“We continue to see strong retail sales, particularly with our pickup trucks and SUVs, and that has helped to propel Chrysler Group to our 40th consecutive month of year-over-year sales growth,” said Reid Bigland, head of the maker’s Ram brand as well as its U.S. sales chief.

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March Car Sales Looking Strong

Buyers spending more – but taking longer to pay off loans.

by on Mar.22, 2013

U.S. car sales are maintaining a strong pace for March, according to several mid-month reports.

New car sales have remained steady in March and are expected to increase by 8 to 10%, year-over-year, according to new estimates from J.D. Power and Associates.

Using data from a broad network of dealers, Power estimates both retail light-vehicle sales and the total light-vehicle rate are consistent with February’s strong performance market.  That would work out to around 12.1 million vehicles by consumers and 15.3 million when fleet buyers are included in the mix.

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Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles. They also tend to be more profitable than fleet sales, especially those to daily rental companies. Most makers have been shifting focus to the retail side of the market – in part because that also tends to prop up residuals, or trade-in values.

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Beware the Repo Man

They’ve been on the decline but could rise again as more auto loans go delinquent.

by on Feb.21, 2013

No, it's not Emilio Estevez coming to reclaim your car.

There’s been plenty of talk about the U.S. housing crisis, foreclosures rising to record levels during the recent recession. But car buyers also struggled to pay their bills and keep the repo man from showing up at their door.

The good news is that loan delinquencies fell sharply since the depths of the nation’s economic downturn and repossessions have likewise dropped sharply. In fact, they hit a 12-year low in 2012, says Manheim Consulting. But another study warns that the trend might soon reverse itself.

For the first time since 2009, the number of 60-day auto loan delinquencies increased during the fourth quarter of 2012, warns Experian Automotive, and with lenders writing more of the risky, subprime car loans that slammed the industry during the recession, the repo man could soon get busy again.

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For the time being, he’s sitting on his hands, repossessions fell by 27.6% during the fourth quarter, says a new Experian report, accounting for just 0.46% of outstanding auto loans.  That was true no matter who issued the loan, banks, credit unions, “captive” or automaker-operated finance companies, or other lenders.

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