If you’re thinking that an ever-climbing percentage of the average household income is being allocated toward car debt – you’re exactly right. According to third-party industry watchers, the number of notes with a monthly payment of $1,000 or more has risen to record heights.
Federal Trade Commission (FTC) has proposed comprehensive rules changes regarding dealership advertising and how finance and insurance offices are handled. However, dealers, specifically the National Automobile Dealers Association (NADA), aren’t happy with these new ideas and have issued formal challenges to the regulatory scheme.
We told you earlier this week how the month of June brought changes to General Motors’ pandemic-era financing offers. No longer is the automaker tempting buyers with zero-percent, 84-month loans on nearly everything in its lineup.
Over at Ford, it seems the same strategy is underway… with one very notable exception. Whether or not you can actually benefit from it, however, remains a matter of location and persistence.
As you read last week, the U.S. auto industry continues its climb out of the coronavirus ditch, with foreign automakers pushing back at a briefly dominant Detroit in a bid to restore sales sanity.
The domestic three managed to unload an awful lot of big-margin trucks during the lockdown, propelling scared customers into dealers with zero-interest financing on long-term loans. Detroit’s rivals have now fully caught on, fighting back with their own offers. For Lexus, the new proposal to buyers doesn’t even end at the new-car lot.
Auto loan terms have been creeping up for as long as anyone can remember. Back in 1997, the average financing period on a new car was somewhere around 54 months. That crept up to over 60 months by 2004 and has only continued to climb. Over the past decade, the typical automotive loan term has ballooned by almost 30 percent. According to an analysis by Edmunds, the average financing period on a new vehicle sold in the United States surpassed 70 months in March of 2020.
While automakers’ recent introduction of loans extending up to 7 years (especially now that COVID-19 is hampering sales) has exacerbated the issue, we were already sitting on a 69-month average in October of 2019. Why would someone voluntarily agree to such a lengthy agreement? They may not have much of an alternative due to similar growth in vehicle transaction prices.
China’s auto sales declined for the ninth consecutive month in March, further proving that the market isn’t as infallible as once thought. The assumption was that, as North America surpassed peak growth and flattened out, Chinese auto sales would continue an upward trajectory. But, while China did surpass the U.S. in becoming the world’s largest auto market, it’s not living up to its billing as a golden goose.
That’s not to suggest the U.S. is about to stand triumphantly atop that mountain. Automakers are issuing profit warnings for 2019 and Moody’s Investors Service expects light vehicle sales to fall 1.2 percent this year.
“The accommodative financing environment that had helped buoy U.S. car sales is receding. Maintaining operating and financial discipline will be crucial [for 2019],” the bond credit rating business advised.
Image, for a moment, that the trailer pictured above is filled with debt. It’s a good representation of the average new vehicle purchase.
Looking at last month’s stats, you’d have to go back to the safe and comfortable pre-Twitter era to find a January in which fewer people got their hands on a zero percent new vehicle loan. January 2006, to be exact.
Last month wasn’t just a departure from a decade past — the car buying landscape appeared quite different just a year ago, all thanks to rising interest rates and the perpetual upward creep of new car pricing. Data from Edmunds helps break down the differences.
Suffice it to say you’re likely paying a lot more, but you’re spreading it out over a longer term.
Earlier this year, Elio Motors said it would launch its own cryptocurrency as a way of funding its troubled three-wheeler. During the initial ElioCoin announcement in April, Elio also said it partnered with Overstock.com to relieve some of its debt. The website claimed it purchased $2.5 million of the startup’s newly issued shares.
As helpful as a few million dollars would be toward progressing Elio’s goals, the cryptocurrency plan seemed patently ridiculous. We didn’t expect to hear much more about it.
Color us surprised, though. Elio has now formally launched the pre-sale of the ElioCoin Security Token, noting that Patrick M. Byrne — Overstock.com’s founder and CEO — will be the first person to open up his wallet to participate in this strange new offer.
Tesla Motors is 15 years old and it is still not profitable. Hyperbolic stock values have encouraged investors to keep showering Elon Musk and his crew with billions of dollars to keep the EV company afloat and develop new products, but now the Bloomberg news agency says that Tesla’s cash burn is severe enough to make the company insolvent this year if they don’t raise new capital, something made more difficult by a recent 24% decline in that stock’s value.
Reporters Dana Hull and Hannah Recht did a deep dive into Teslas finances, both where their money has come from and where it’s been going. They came up with some interesting data. The company is going through cash at the rate of about $6,500 a minute, a bit more than $9 million a day. Free cash flow has been in the red for over a year. That’s how much money a firm generates after subtracting capital expenses.
People love generational studies. The notion that being born a few years away from another person creates a disparate, irreconcilable identity is an appealing one and is, to some extent, backed by plausible evidence. After all, growing up in 1975 was different than growing up in 2005. However, when exactly those subtle differences surface to an extent where they can be measured is debatable.
That’s why I was so intrigued by a recent study indicating that Generation Z will be “nothing like their Millennial predecessors” when it comes to financing automobiles and purchasing automotive insurance. Members of Generation Z currently run between the ages of five and 21. So, how exactly will your five-year-old go about procuring coverage or a loan for their first automobile?
Car buyers who borrowed money to finance their purchase are seeing higher loan debt per borrower rates, along with higher delinquency rates. And it’s happening on both sides of the border.
Let’s start with Canada. Automotive News picked up a report from TransUnion showing that average auto-loan debt per borrower has gone up in the second quarter, and so too have delinquency rates. This is happening as vehicle prices have also risen during the same time period. Consumers are also rolling in other debt and parts of the country are still in recovery mode from the recent economic crisis.
Years back, after the desire to purchase one particularly fetching model became too great, you walked into the dealership, marched right over to the salesman’s cubbyhole, and signed over several years’ worth of payments on your ride du jour. Bliss ensued.
Unfortunately, come trade-in time, your once-desirable ride isn’t even worth the amount left owing. You’re in negative equity, pardner. Still, buyers faced with this situation have a number of options at their disposal.
Thanks to a recent study of new car buyers, we now know exactly how owners of low-value trade-ins chose to deal with their unexpected debt.
The low, low monthly payments offered by spreading the cost of a new or used vehicle across a vast gulf of time is certainly an attractive one, even though the practice is fraught with hidden danger.
For U.S. car buyers, it has also become a very popular one, with data showing just how many people have decided to embrace a 73- to 84-month payment plan. Not only are their spending habits changing, they’re also changing their lender.
Imagine the following scenario: You’re a Buick salesman. An elderly woman comes into your showroom to inquire about a replacement for her Regal. You decide that she’s a great candidate for an Encore, and since you have some previous-year Encore stock you decide that she’s a great candidate for a 2015 Encore instead of the new model. There’s a $149/month lease deal available from GM Financial. What kind of deal do you make for this woman?
If your answer is, “I’d charge her over sticker for the vehicle, switch the lease company to make some back-end money, and add nearly a thousand dollars of profit in fees above that,” then you might just be the salesman that Buick GMC of Beachwood, OH needs.
Latest Car ReviewsRead more
Latest Product ReviewsRead more
- ToolGuy Honda is dreaming. And resting on its 'laurels' (French for 'posterior').
- SCE to AUX Here's some advice - slow down. That's a great way to arrive home safely, without a ticket, with lower blood pressure, and more economically.
- Dartdude They need to rebrand the models, The standard model should be Wagoneer and long version should be Grand Wagoneer. There should offer the Ram Rev powertrain in these
- Irvingklaws Seems more like they're adopting Honda styling queues. Now if they would just adopt their reliability...
- FreedMike "Obsidian Edition."Oooooh, obsidian is really, really hard stuff.