GM Canada CEO Sounds Alarm Over Cheap Loans
GM Canada’s CEO is expressing apprehension over the way cheap auto loans are fueling vehicle sales in Canada.
In an interview with The Globe and Mail, CEO Kevin Williams said
“Macroeconomically, there’s some reason for optimism [but] nobody in the industry had the industry pegged at this number,” Mr. Williams said. “Nobody had the industry running this high.”
2013 is expected to see a record 1.73 million new vehicles, but much of the growth seems to be stemming from long-term loans designed to keep payments low. According to a JD Power study cited by the Globe, 64 percent of Canadian car loans have terms lasting for 6 years or longer.
Consumer debt has been a controversial topic in Canada, with Canadians taking on accumulating record debt amid low interest rates and easily available credit. But the concern over easy credit in the auto sector is unlikely to become a systemic risk, even as interest rate hikes loom on the horizon.
The norm among folks I know seems to be a two-car family - they sort of alternate on the cars - one payment at a time, so they have the payment approximately half the time they own the car. Sometimes they take a "it's so nice to not have payments" break, but mostly they alternate. Maybe I don't know enough financially despondent status-chasers!
@Big Al--good analogy to the shaving industry. In reality a good two edged safety razor produces better less expensive shaves, but gimmicks sell. Long term no or low interest car loans create an increase in vehicles sales, but then this is at the expensive of long term sales. My wife and I bought the 2013 Honda CRV with a 60 month 0.9% interest which comes to about $770 interest over the life of the loan. We were not given a discount for paying cash and that is why we took the loan. I have always paid cash for my vehicles, but it made more sense to use Honda's money and leave mine invested. But getting back to your point we plan on keeping the CRV for 10 years. @Lou BC-It will be one heck of a hang over once many have to start paying the piper and that is not just the borrowers but the the auto industry as a whole. Like robbing Peter to pay Paul.
I suggest people google "Money As Debt" to understand why we are in this current situation right now.
Easy People. #1, should people not lock in on the super low interest rates now? 5, 6 even 7 years from now the rate's will not be at this Historical Low. #2, Yes Vehicles are lasting longer, (and I live in the Rust Belt) So most will last until the end of thier loans. #3. Starting in the Business, I witnessed 17.9% Loans, and People calling it a "Last Time Buyer Program" on a 60 month loan. Meaning that it will depreciate quicker than the Customer is paying it off. Almost 20% was going to the Bank. Now loans are 0-7%, Why not lock into that, More Vehicle, Less going to the Bank. Maybe the Customer Won't need to trade out of it sooner to meet thier nedds. #4 Why is GM Canada's CEO bringing this up? GM Canada is the one that brought 0% financing to Canada. Way back in 1998. Financing at the time was , Then GM dropped the bombshell of 0%. Smart Customer's traded thier vehicles, and ask for a Lean Cheque back so they could invest the Lean Cheque, into something at the time was paying 4-6%. insert here 8.0% #5 Why is GM Canada's CEO bringing up Long Term Financing, When they are Still coaching 0% for upto 84 month's?