References to "the recovery" continue to proliferate in mainstream media stories about the economy, but the details are always a little hazy. Today we've got something we can sink our teeth into. I'll quote from Bloomberg's Credit-Fueled U.S. Car Sales May Need Help From Incomes, but before I do, I want to reiterate yesterday's complaint. As with the Census Bureau's 2011 Supplemental Poverty report, this story about auto loans received hardly any coverage by the Usual Suspects.
A rebound in U.S. auto sales has been buoyed by the return of easy lending, even to borrowers with flawed credit histories. Some economists question whether the gains can be sustained without a boost in hiring.
Auto loans were up 5.5 percent in the second quarter from the same time last year, with riskier buyers accounting for 43.9 percent of the total, up from 42 percent in 2008, according to Experian Plc.
By contrast, hourly wages for non-managers climbed 1.1 percent on average over the past 12 months, the least since records began in 1965, Labor Department figures show.
Light vehicle sales from January, 2006 through October, 2012. From Calculated Risk.
Income is stagnant according to the official numbers, but car sales are booming. You don't need to be a rocket scientist to figure out how this miracle has been wrought—the incomparable magic of easy credit! The very same tragic magic that fueled the Housing Bubble.
The financing spigot opened as Federal Reserve efforts to keep interest rates low prompted investors to pour money into securities backed by subprime car loans in search of higher returns, giving the auto industry and the economic expansion a lift.
That may no longer be enough to fuel purchases as wages are held back by a pool of 12.3 million unemployed Americans.
“If you want to take it to another level of sales, you want to see more of the fundamental drivers of consumption improve more materially, things like income and employment,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York, the bank with the third-best forecasts for consumer spending, according to Bloomberg calculations. “With credit flowing again to subprime, you’ve had the wherewithal to bridge that gap to execute on pent-up demand. That takes you only so far.”
Yes, the boom in subprime auto loans takes you only so far. But that's where the "smart money" is going.
‘Smart Money’
“The smart money is definitely investing heavily in automotive subprime,” Global Lending founder Douglas Duncan said. “You’ve seen significant growth year-over-year in subprime. Obviously that’s helping to drive sales.”
Dealer sales are on pace to increase at least 10 percent in 2012 for the third consecutive year, the first such streak since 1973.
The string of double-digit gains may break next year. About 15 million new cars will be sold in 2013, a projected 4 percent increase over expected 2012 sales, according to a September forecast by Edmunds.com, a research group in Santa Monica, California.
“There’s no question that credit is readily available at great rates,” said Bill Fox, a partner in Fox Dealerships in Auburn, New York, which has four lots close to Syracuse and a fifth in Painted Post near Corning. “It’s certainly different than it was a few years ago. It’s uniformly a good time to be in the car business.”
Absolutely right! It's a good time to be in the car business, despite the fact that U.S. workers endured a ‘lost decade’ of declining wages. And it's even a better time to be in the car financing business!
Well, I guess I've been shown up. This saga of continuing decline I describe and document here on DOTE is all wrong. I mean, just look at where the "smart money" is going—subprime auto loans. You can't fight the smart money, right?
Do you feel like listening to Janis? I sure do.
Come on, sing along! Everybody!
Oh Lord, won't you buy me a night on the town ?
I'm counting on you, Lord, please don't let me down.
Prove that you love me and buy the next round,
Oh Lord, won't you buy me a night on the town ?
Everybody!
Oh Lord, won't you buy me a Mercedes Benz ?
My friends all drive Porsches, I must make amends,
Worked hard all my lifetime, no help from my friends,
So oh Lord, won't you buy me a Mercedes Benz ?
And I wonder why people borrowing hand over fist to purchase a rapidly depreciating asset is the kind of activity TPTB want.
Posted by: Ken Barrows | 11/20/2012 at 10:05 AM