Auto Markets the U.S., Germany and China
- Bumpy Road Ahead For The U.S. Auto Industry
- Germany’s Motor Is Sputtering
- Chinese Auto Sales Are Stuck in Reverse
Recent hot weather made me daydream of a once-familiar summer sight: the unlucky driver pulled over with steam pouring out of the car’s radiator. Happily, we don’t see scenes like that much anymore. Vehicle reliability has come a long way, even in my own lifetime. When I learned to drive just 20 years ago, checking fluids and changing a flat tire were essential lessons. Now, I can’t remember the last time I needed jumper cables.
Much like the products it produces, the American automotive market has entered a state of maturity and stability. Vehicles have never been safer or more efficient, and financing has allowed more buyers to obtain better vehicles. But changing market circumstances will put sustained pressure on the automotive sector, which may need jumper cables of its own in the years ahead.
The macro economy has been as good as it gets for the automotive industry. Through 2010, U.S. unemployment was close to 10%, but it now stands at a 50-year low. More workers are re-entering the labor force. These people need vehicles to get to their jobs, and their jobs give them incomes to afford cars. Auto sales have consequently grown steadily during the current expansion.
Easier financing conditions have contributed to this performance. Automotive lending is an attractive market for banks and finance companies: All loans pledge a valuable asset as collateral, and in lean times, people tend to prioritize their car payments over other obligations. In the aftermath of the financial crisis, the delinquency rate on auto loans held lower than that of mortgages. Cars and homeownership may both be pieces of the American dream, but when the chips were down, we learned that Americans who possessed both assets would sooner keep their cars than their houses.
“Years of easy credit have caught up with auto lenders.”
Ample credit gave consumers access to loans and leases for the vehicles they wanted, but now, many are overextended. The loose standards of past years are manifesting as higher delinquency rates today, with the 90-day past due rate of 4.7% of balances in first quarter 2019 within sight of the crisis peak of 5.3%. Lenders are at risk of greater losses as vehicles are recovered with little equity. While interest rates remain relatively low, lenders are tightening standards and manufacturers are curtailing interest-free financing to draw buyers into dealerships.
Consumers are stretched by their other obligations, as well. The student debt burden cannot be ignored, with about 45 million Americans carrying student loans on their credit files. Meanwhile, rents and house prices continue to rise nationwide, crowding out car payments in consumers’ budgets. These factors have contributed to a flattening of demand for cars seen recently.