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.