8 years to pay off a car? A report by the Wall Street Journal claims that in Q4 of 2012, the average car loan stretched out to 65 months, or just over 5 years. Loan terms were being stretched out over increasingly longer terms too, with credit firm Experian reporting that nearly 1 in 5 car loans had terms between 73 and 84 months long, with some stretching for as long as 97 months.

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March was the 5th straight month of a SAAR above 15 million vehicles.  Industry analysts have explained the strength of the market in a number of ways. The need to replace older vehicles is one (new car sales were hit hard during the recession as consumers held on to their vehicles for longer. This also caused used car prices to skyrocket, something TTAC has been documenting), while others have cited increasing fleet demand, and the desire to replace vehicles damaged in Hurricane Sandy.

But one factor that is just starting to get attention outside of TTAC is sub-prime financing. Sub-prime lending, which involves giving high-interest loans to customers with poor credit scores, is driving the SAAR in a big way, by letting buyers with poor credit purchase new cars. In turn, the sub-prime bubble is being driven by Wall Street, whose clients cannot get enough of financial instruments backed by sub-prime auto loans.

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As Steve Rattner described in his book “Overhaul,” the Presidential Auto Task Force very nearly decided not to rescue Chrysler, with the decision coming down to a single vote. Now, it seems, that with Chrysler blaming the “shyster” interest rates on its government loans for its lack of profitability, Chrysler’s viability now depends on rounding up a “lender of second to last resort.” And, according to the latest reports, that rescue-of-a-rescue effort is still very much hanging in the balance as well. If CEO Sergio Marchionne thought the government’s loan terms were “shyster”-ish, he was clearly in need of some context from Wall Street… and he doesn’t seem to be liking it.
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