Sales of new vehicles are up, with light trucks leading the way. Never mind that some of the automakers’ rosy numbers are elevated by “channel stuffing” and that scads of new cars are parked inches from each other in massive lots around the world.
The point is something that has flown under the radar. Not long ago, car loans were four years, max.
Then it became five, then six … and now …
Auto expert Eric Peters: “Enter the eight-year loan. Which might be OK, if cars were not appliances. Very expensive toasters, basically. Though modern cars are longer-lived than the cars of the past, they are – like any other appliance – something you eventually throw away because eventually, it will wear out. Or cost too much to fix, relative to the value of the car itself.”
He calls auto financing a bubble and provides evidence.
“The average price paid for a new car this year was about $35K, a record high. The year prior, it was $33K. But the average family income in the United States is around $55K. And it has been around $55K for at least a decade.”
You know a new car magically depreciates 20% when you drive it off the dealer’s lot and that the pleasant smell goes away in weeks.
Eric covers all the math and points out it is virtually impossible to find a new car without a lot of bells and whistles, many of them mandated by the government.
Case proved. But let’s look at the bright side: The car financing bubble is sure to help one segment of the job market … repo men.