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U.S. Auto Sales Expected To Dip But Still Remain Strong In November

Dec 04, 2017

J.D. Power/LMC Automotive, Kelley Blue Book, and Edmunds are all forecasting a seasonally adjusted, annualized selling rate (SAAR) between 17.1 and 17.8 million, representing a slight drop-off from SAARs in September and October of this year.

Analysts disagree on how sales volume will compare with a year ago, with estimates ranging from a 1% decrease to a 3.5% increase. Edmunds has the most positive outlook, expecting a late rush of Black Friday sales to push the industry to a 3.5% increase in sales compared with November 2016. Meanwhile, J.D. Power/LMC is forecasting 0.2% decline in sales, and Kelley Blue Book is predicting a 1% decline in sales

Incentives are keeping sales from dropping too far. According to J.D. Power, average incentive spending was on pace to be $4,065 per vehicle in November 2017, just shy of the record $4,091 set in September 2017. In fact, incentives were representing an average of 10.8% of sticker price in November, the 16th time it has be above the 10% level in the past 17 months.

Longer-Term Auto Loans Growing

A new report from the Consumer Financial Protection Bureau (CFPB) has found that consumers are seeking out longer-term financing for automobiles to take advantage of cheaper monthly payments.

The CFPB looked at a sample of 5 million credit records 2009 and 2017, and found the share of loans with terms of six years or more increased from 26% of all auto loans originated in 2009 to 42% in 2017. The average credit score for borrowers with six-year loans was 674, according to the study, about 39 points below the average for borrowers with five-year loans. Longer-term loans also are more popular in financing larger amounts with the original loan amount on five-year loans averaging $20,100, compared to $25,300 for a six-year loan.

Growing Number Of Consumers Falling Behind On Car Payments

According to data recently released by the New York Federal Reserve, 6.3 million Americans are 90 days late (or more) on their auto loan payments, an increase of about 400,000 from a year ago. The delinquency rate on autos has been steadily rising since 2011, a reminder that millions of consumers are still struggling to make ends meet.

The Federal Reserve found that 9.7% of the subprime loans issued by auto finance companies became late by 90 days or more in the third quarter of 2017, compared to 4% of subprime loans issued by banks and credit unions becoming delinquent.

Stringent regulations put in place following the Great Recession have made it harder to get a home mortgage, but most of the rules don’t apply to auto finance companies. This explains why delinquency rates for home mortgages (and credit cards) have steadily fallen since 2010, while auto loans and student loan rates have been rising.

Analysts don’t expect auto loan delinquency rates to set off another financial crash, mainly because the auto loan market is much smaller than the mortgage market (an average car loan of about $30,000 compared to $220,000 for the average home loan).