Auto Sales Expected To Grow In 2014 Thanks To 100 Month Financing

by TTAC Staff

Published: January 28th, 2014

auto sales expected to grow in 2014 thanks to 100 month financing

Younger buyers and subprime consumers are expected to drive auto sales in 2014, though some banks are already stepping off the accelerator with auto loans due to heavier competition and a desire to protect their margins.

Sales in 2014 are predicted to hit 16.2 million according to J.D. Power & Associates, with millennial buyers and subprime buyers contributing 3.3 million and 2.1 million units, respectively. Both surges in these categories are welcome with automakers, especially younger consumers who would love to be in a car were it not for the Great Recession keeping their wallets at bay.

The growth in sales comes against rising auto prices, which are expected to average $29,700 in 2014. One result: long-term financing in the form financing options that can be amortized over 100 months.

Those seeking loans for their new or used vehicle may need to shop around for financing, however, as some banks — such as Huntington and BB&T — are more interested in protecting their margins than chasing after more market share.

Among the big winners in Q4 2013, Wells Fargo originated $6.8 billion in auto loans, followed by Chase with $6.4 billion, and Capital One with $4.3 billion. Wells Fargo is the industry leader in used-car financing, but does well with new-car loans, as well, particularly in their relationship with General Motors.

A lot of the success comes from tightened lending standards that came as a result of the Great Recession, bringing a number of banks into the low-risk lending party. As economic conditions return to the surface, however, some banks are opting out of expansion into murkier waters for the time being as others cast their nets into the unknown, bringing gradual increases in credit losses as underwriting standards are relaxed to attract more subprime customers and younger buyers.

#AutoLending #GenerationWhy #GreatRecession #Long-termFinancing #Sales #SubprimeConsumers #SupplyAndDemand

TTAC Staff

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3 of 109 comments

Boxerman on Jan 28, 2014

From my experience a mercedes will need a5-7K input at 45-50Kmiles. In 8 years car may well go 100K miles. If its a german car and something like the transmission goes, or any number of other bits you are in for 5-10K more. So lest say over the 100k miles you are ptting 20K into repairs, Whereas at 45k on a lease you can jus return it, or it you own it trade it. I would say owning an expensive car out of warrantly especilay a german one is sure financial suicide. Now a new Gm car or Ford truck may well go the diatnce, as would somethig n from Korea or Japan, but aeuro lux car forget ot..

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- Krhodes1 on Jan 29, 2014
  
  Unless you have your car serviced at Mercedes of Manhattan, I think your prices are a tad exaggerated. Or you are buying loaded S-class and driving it like Big Truck Series. Maintenance on a $120K car IS expensive, but the depreciation is even more so. No matter how you slice it, the depreciation on a new car is more expensive than fixing a middle aged one. Even a German car. Let's assume a 3-year lease on a mid-level 3-series, your classic $499/mo lease special (which is a subvented price besides). Usually at least $3K down to get that rate, 3 year lease. That is $21,000 NOT including tax and any license fees. In my state, those first three years of excise tax alone will cost you another $3500 or so, then there is 5.5% sales tax on the $21000, plus let's say another $400 in dealership fees. So that three year lease will cost you better than $25000 in cash. At the end of that period, you have nothing, and in fact there are usually fees associated with turning the car back in. Do you honestly think that car is going to cost anywhere NEAR $25000 in repairs and maintenance in the next 3 years? 6 years? Buying one works out a little better, but not much. Let's say $50K over 4 years at a low interest rate. Still going to be nearly $60K by the time taxes, fees, interest, and tires are paid for. It's a BMW so maintenance is free other than tires for the first 4/50K. At the end of four years you have a paid for car with no car payment that is worth $20K +/-. So it cost you net $40K to get to that point roughly, if you sell it when the warranty runs out. Do you honestly think you are going to spend anywhere near that in the next 4 years? Seriously? Because I am on an awful lot of forums and nobody has ever spent anywhere NEAR that in maintenance. That is MULTIPLE engines and transmissions. You MIGHT get those kind of running costs out of a Ferrari, but not a normal German sedan. There is a guy on the BMW forum who has run an '06 325i to well over 200K miles keeping meticulous records along the way. He hasn't spent $25K including gas and insurance on that car! People miss the forest for the trees with this stuff. Those easy $500/mo payments add up to REAL money over a few months, month in and month out. Sure it sucks to get hit with a few thousand dollar bill for a car repair (not that I ever have in decades of owning well-aged European cars), but it is still better than paying for depreciation those first few years. Buy the car you want, and keep the thing for a good long time to amortize that depreciation and other upfront costs over many years. TRADING cars is financial suicide, not keeping them out of warranty.
  
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Mcarr on Jan 29, 2014

I'm not going to make a blanket statement against a 100 month loan, because there's so many variables that factor into purchasing a vehicle. I've made some pretty bad financial mistakes with car purchases, but I'd like to think I've learned a lot since then. For instance, if you're going to give me a 0% 72 month loan, hell yes I'll take that, and have. The last instance was on a 2009 Silverado, and given the purchase price I negotiated I was above water on the loan in two years, and when I traded it after three years I had $4,000 in equity on it. The factors working for me in this instance were a vehicle that holds it's value well, and a good purchase price. I wouldn't actively seek a 100 month loan, but if they were going to give me one at 0-2%, I might consider it. The other point is this whole $30k average for a new car thing. There are these thing called "used cars" and they can be had at any price point between $0 and that $30k. I honestly believe I will not buy new again.

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