Big segment of the economy is dependent on consumers being able to make the monthly payments
Economists have wondered in recent months where consumers were spending the money they were saving on gasoline prices.
The answer appears to be at car dealers.
New U.S. car sales rose at a record pace last month, recording the best October since 2001. Sales were up double-digits for all brands, except for Volkswagen, which continues to deal with the fallout from its emissions scandals.
“We’ve officially passed recovery mode and are now into record new-car sales,” said Karl Brauer, senior analyst for Kelley Blue Book. “All the key factors, including pent-up demand, low interest rates, easy credit and cheap gas, were in place for unprecedented October sales. Like 2005 all over again, truck sales are dominating the market, and driving not only growth but healthy profits throughout the industry. Right now it’s a great time to be an automaker or dealer.”
Not only are consumers buying more new cars, they continue to pay more for them. Brauer says the average transaction price on light vehicles in October was $34,023, up 1.4% from a year ago and up half that from August.
All that, of course, is good for the economy – as long as consumers can pay for these ever-more-expensive cars and trucks.
And as sales and prices go up, so does the amount consumers must borrow to drive away in a new vehicle. A report by Experian Automotive puts outstanding loan balances on automotive purchases at a record level in the third quarter of 2015 – $968 billion. That’s up more than 53% since a post-recession low in 2010.
Is this a good thing? Maybe. Maybe not.
“Continued growth in the automotive finance market is a clear sign of improved consumer confidence over the past few years,” said Melinda Zabritski, Experian’s senior director of automotive finance. “Since bottoming out in the recession, automotive sales have rebounded steadily, which is a good sign for consumers, automotive manufacturers, lending organizations and the overall economy.”
On the other hand
But Zabritski hedges that assessment with this condition – consumers must stay on top of their monthly payments.
“If they can continue to manage their financial obligations and make timely payments, the automotive industry can continue to flourish and grow for quite some time,” she said.
So far, it looks like consumers are holding up their end of the bargain. During the third quarter of 2015, 30-day delinquencies dropped to 2.5% from 2.7% a year earlier. Sixty-day delinquencies also declined slightly over the same time period.
Story provided by ConsumerAffairs.