It’s a cliche that if you sit at a hotel bar in the US you’ll find the person next to you has an interesting story, but it happened the night before the LA motor show.
Some 70 floors up in Downtown Los Angeles I found myself chatting to a guy who worked in mergers and acquisitions for a US bank. His interest was in auto dealerships. Indeed, he said, a dealer network north of LA had collapsed in the last few days.
I asked why, and the answer was simple: wafer-thin margins. Many new cars are sold to buyers at barely above their cost to the dealer, he said. Unless the dealership also has an active used car operation, new car sales are often not enough to pay the bills.
Although the US new car market remained very fractionally up year-on-year between January and October there’s increasing nervousness that the whole operation is about to take a turn for the worse.
One big fear is the extent to which US car buyers have moved into leasing cars (much like the UK) since the Credit Crunch. Around 31% of new cars are sold as monthly leases and the cheap deals of recent times are running out. The chance of interest rate rises in the US are also lurking in the background.
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Sell, sell, sell...
...Just like the sub prime housing market and when it goes wrong the general public / the government will offer a bail out, so nothing to lose.
Just Like Student Loans
Here in the US Student Loan debt is colossal, now its being challenged by US car loan debt. Both are above 1.3 trillion, and both have 90 day deliquency rates above 4% and rising. In 2017, the last data I could find, 32% of auto loan trade ins were upside down (more owed than the cars value). Meanwhile, new car sales remain at record levels and the average new car transaction price has moved up substantially (subsidised interest rates and low fuel prices). If you cannot see the warning signs then go back to reading the Beano. And if you say 'so what, thats in the US' just remember what happened when the last US debt problem imploded!
Every Country?...almost.
Most are in this dilemma, monthly is attractive, but when interesting rates go back up?!
Tell the truth
Actually, it’s all because of Brexit.