Most auto industry analysts knew it was coming, higher interest rates for new cars, indeed most consumers in the market for a new car probably also considered it. The subprime fallout has hit the US Auto Industry and auto loan rates just went up. Are you worried? Well if you are in the auto industry or even in the after market auto industry then you know this is indeed serious for your business or livelihood.
If you have a high credit score and golden credit then it may not be so bad, yet the truth is that most US consumers have some blemishes on their credit reports, whether it is theirs or from an Identity Theft criminal event. If your credit is not perfect and you think you are going to get a good interest rate or good deal on a loan – think again.
In fact, for the not so great credit folks you may find it hard to get a loan at all. What does this mean for auto dealers? Well one industry analyst stated that the estimated sales for 2007 should have been 16.5 million cars sold, but now most are revising it to 15.9 to 16.1 million cars. That is a huge difference of between 400,000 to 600,000 fewer cars. It means layoffs, factory slow downs and less profit. It will hurt the industry. Automotive News Magazine stated:
“NADA chief economist Paul Taylor predicted that U.S. sales of new cars and light trucks this year would roughly equal the 2006 mark of 16.5 million. Now Taylor predicts 2007 sales could dip as low as 16.1 million units. At the same time, some lenders have raised interest rates on vehicle loans to subprime buyers. Dealers in markets where subprime mortgage problems are most acute report slumping sales at their stores.”
US Automakers will be hurt worst as they are struggling to regain market share from the advancing Toyota and Honda Brands, worse the first Chinese Autos will hit the first Chinese Auto Dealership in the US, in New Jersey by mid-2008. The question is how much more pounding can these companies take and what will this do to consumer confidence as we dip into the next downward trend in the US Business Cycle.
Why did all this happen? Well, when automakers want to sell more cars and when there is an abundance of retained earnings or easy to get to ‘large amounts’ of capital, this combination can spark a bubble. As long as things are good, no one says anything until things are not good anymore – then a quick tightening must occur to prevent a bubble pop, sometimes it’s handled correctly and at other times it’s too late. Please consider all this and think on it – because history always repeats.