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October 2, 2019 | Car Dealers Make More Profit On Loans Than Selling Cars

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
A third of auto loans in 2019 had a term period over six years. People cannot afford the cars they are buying.

Seven-Year Loan Surge

America’s middle class can’t afford its cars.

A surge in the Seven-Year Auto Loan rate provides all the evidence you need.

Walk into an auto dealership these days and you might walk out with a seven-year car loan.

That means monthly payments that last well past when the brake pads give out and potentially beyond when the car gets traded in for a new one. About a third of auto loans for new vehicles taken in the first half of 2019 had terms of longer than six years, according to credit-reporting firm Experian PLC. A decade ago, that number was less than 10%.

Incomes have risen at a sluggish pace in the past decade, but car prices have grown rapidly. A lending machine has revved up in response, making it possible for more Americans to procure a vehicle by spreading the debt over longer periods. Wall Street investors snap up these loans, which are bundled into bonds. Dealers now make more money on the loans their customers take than on the cars they sell.

Families Go Deep in Debt to Stay Middle Class

On September 9, I noted Families Go Deep in Debt to Stay Middle Class: Revolving Credit Jumps 11.2%

These are signs of a “Late Stage Credit Bubble

Ability to buy things one cannot really afford does not make or keep someone in the “middle class“.

Wages are not keeping up with needs and desires.

Collectively, these reports show a late stage credit bubble the Fed desperately wants to keep inflating.

Mike “Mish” Shedlock

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October 2nd, 2019

Posted In: Mish Talk

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