Even as some experts predict new car sales could top 16 million in 2014, there could be a storm brewing for maintaining current sales and inventory levels. According to Automotive News, consumers are buying new cars because it's easier to get a loan – even if that loan is for longer terms and to buyers with subprime credit – which, surprisingly, is considered anything below a 680 credit score.

We already knew that buyers are opting for longer loan terms – up to 10 years! – but AN says that on average loans are for 65 months (or almost five and a half years). There has also been a rise in subprime lending with these loans accounting for 25.4 percent in Q2 2012 and 27.4 percent in Q2 2013. Fortunately, delinquent loans (those three months or more overdue) are still low and haven't risen along with subprime loans.

The problem with all this seems to come down to the fact that gains built on easy credit could tumble if interest rates are raised. To keep up with the added demand for new cars, many automakers have increased production capacity, but higher interest rates could lead to slower sales, excess inventory and higher vehicle incentives. The report says that as an alternative to cash-on-the-hood incentives, leasing is also continuing to grow, with about 26 percent of all new-car sales coming from leasing (through June of this year) marking an increase of 5 percent since 2010.


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    • 1 Second Ago
  • 59 Comments
      express2day
      • 1 Year Ago
      It means people continue to buy more car than they should/need because they can, thanks to long term financing and cheap lease payments. The excessive desire to keep up with the Joneses has impacted the auto market as well as the housing market. People want and choose to buy more and more car just as they've wanted and chosen to buy more and more house.
        Rick
        • 1 Year Ago
        @express2day
        It's not always to keep up with the Jones. Sometimes you want something at the edge of your budget for yourself, as a rewards for hard work and a short life to enjoy it. Not for sake of comparison to others.
          express2day
          • 1 Year Ago
          @Rick
          There's some of that too. Today's generous finance and lease terms combined with comparatively lower prices allow people to get into more car than times times, and so they do. For too many, Chevys and Fords and/or entry trims aren't "good enough" anymore just as 1,700 sq ft houses typical of decades ago are no longer "good enough."
      Hernan
      • 1 Year Ago
      As others have commented, this doesn't seem like a big deal if you plan to keep the car that long (and the useful life of cars today is certainly long enough). It's a problem for the auto industry, however, if we don't buy new cars as often.
      aatbloke1967
      • 1 Year Ago
      "Average new car loan stretches 5.4 years, so what does that mean?" That once again, people are borrowing more than they can afford to purchase consumables they don't necessarily need. The events of 2008 evidently taught them nothing.
      whatever
      • 1 Year Ago
      Substantial subprime lending and being attached to a long-term loan for a principal that is more than one could otherwise afford (without such a long term) should be the focus of the concern here. Yes, cars in general are more reliable these days than they were 10+ years ago. That does not excuse the fact that individuals are choosing to take up huge loans for artificially low rates and extremely lengthy terms, which in the end is more than they could reasonably afford. Too many are focused simply on monthly payments rather than the cost of the purchase, hence the popularity of leasing (read: renting). I can afford the monthly payments on a Bentley if I had a 20-year loan at 0%. In no way does that mean I can afford a Bentley. If you can't put 20% down and work with 36/48 month terms, you are kidding yourself.
      MONTEGOD7SS
      • 1 Year Ago
      Bought my '10 MS3 last year used but virtually new, with 3,800 miles on it. 50% down, short loan, and why? Because that was the smart financial decision. If I didn't need to worry about finances then I would have a '13 BOSS 302 sitting here instead with a 6 1/2 year loan. I got burned by the housing bubble, and that will never ever happen again.
      Seal Rchin
      • 1 Year Ago
      Don't worry, we will bail these people out. Think about is some guy pays 25K for Accord, when he can pay 18K for Civic (which is the same size as Accord was only a few years ago) People are buying cars that they WANT, not cars they can afford. You can always find something that fits your budget, either getting a lower trim or a class below.
        Bill
        • 1 Year Ago
        @Seal Rchin
        Even worse is the person who buys the 25K used M-B or BMW and can't afford the maintenance...
          Andy
          • 1 Year Ago
          @Bill
          That is so very true. They think they are getting a good deal until they figure out that an A or B maintenance is more than a car payment.
          Rick
          • 1 Year Ago
          @Bill
          Just buy that $25k Merc/BMW/Audi as a CPO and you'll be fine.
      550PlusX5
      • 1 Year Ago
      Well ****... It's obvious.. Americans have needs and american have wants. Americans need to spend $500 on a new iPhone 5c. Americans need to spend $80+/month on a smartphone data plan Americans need to spend $80+/month on Directtv and get the dozens or so sports channels Americans need to get an 84-96+month subprime car loan because a new car is a need. Americans need to spend $300+/month eating out... So it's obvious that with so many "needs" that americans have, americans clearly do not have any money to be required to buy "wants" like health care insurance. Duh! (end sarcasm)...
        Teleny411
        • 1 Year Ago
        @550PlusX5
        But how many Americans are even getting cost of living raises?
        brandon
        • 1 Year Ago
        @550PlusX5
        Two things, people spend 800(well really 200) on a iP5S, not C. The C is a flop. (well, so is the S, but I digress) ALso, if you are single, or just a couple, eating out is cheaper than eating in. I spend about 300-350 a month to eat out, but if I buy food(other than cereal or crap like that) that's worth eating it's about 400 to eat at home. Together, and this is including the once a week my fiancee and I go out to a real restaurant. Also, then there is the lost time with cooking at home, plus dishes and electricity/water to run the machines that cook/clean. Eating in makes sense for people who have a family, but in a 2 person household, it's cheaper to eat out.
        nr_buckeye
        • 1 Year Ago
        @550PlusX5
        Wow, not one thing on your list applies to me! 1. Using a 4 year old flip-phone. 2. No cable TV or antenna signal. 3. Used car paid off next summer and I plan on having it for 3-4 years after that. 4..Rarely eat out due to income/lack of good places to eat. Its all a matter of not bowing to social pressure.
      Shomare
      • 1 Year Ago
      What it means is that wages have not kept pace with the cost of automobiles. 23K for the average new car is so expensive that folks are taking out five year loans. I've never taken out more than a four year loan as my thinking was if you have to stretch it out that far, you can't afford the car. Now, it's out of necessity.
        Bill
        • 1 Year Ago
        @Shomare
        Or to take advantage of a good deal
      Chris
      • 1 Year Ago
      What is means is the average American is buying more car than they can afford, period. I saved up and paid cash for my first car, and have been saving (making payments to myself) ever since. When I want a new car, I just go out and pay cash for it. I\'m saving for the future purchase and not spending all my money paying off the ever depreciating car I already own just to end up back at zero when I need a new one.
      Cain Gray
      • 1 Year Ago
      Just took Dave Ramsey's course, and I will say that I will never finance a car again. Ever.
        wilkegm
        • 1 Year Ago
        @Cain Gray
        Odd- not sure I'd ever heard of Dave Ramsey before today, but your post makes twice today. "Math is not optional."
        Ken Cravillion
        • 1 Year Ago
        @Cain Gray
        Yup, wife and I took the Dave Ramsey course. Made me realize that paying $500/month for my 2010 STi was kind of dumb. Sold it and paid cash for my 2002 Yukon.
      Kumar
      • 1 Year Ago
      Well, the low rates definitely make it easier to spread the payments out over more years with less interest. My brother opted for a 6 year 0% loan a few years back because he could and was fairly sure he'd have the car that long. An upside to this is that many/most cars are doing great mechanically still at that age, so there's less to worry about. On the downside, there will be more people who will decided they want a new car before the old one is paid off and roll the unpaid principle into the new loan. We're still seeing defaults on those types of loans, where the borrower may be looking at a loan for a car that's half the value of it.
        VL00
        • 1 Year Ago
        @Kumar
        Yeah, the surge in people coming into a new car loan upside-down is more noteworthy
          BG
          • 1 Year Ago
          @VL00
          Noteworthy and pathetic. Careful money management - NOT.
      Bill
      • 1 Year Ago
      Ummm... people are financing and leasing more because the rates are so low, improving economy and pent up demand during the recession. Low rates, lower monthly payments, more car sales. Car sales and GDP are similar to before the recession. Car production increased but huge decrease because of the recession... Not enough used cars for sale anyways so resale value should be decent. Will it be a problem if the economy turns? Yes... the auto industry is very dependent on the state of the economy. However, still see more upside than downside in the North American car industry.
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