Pundits and politicians have been celebrating the revival of new auto sales as evidence that the consumer has healed and the economy is back on a solid growth path. Unfortunately, as with everything else we have seen over the past 10 years, when people are sold goods (especially in this case- depreciating assets) heavily financed on crazy credit terms, the growth foundation proves as solid as beach sand. Car companies have been channel stuffing vehicles on to dealer lots and booking them sold; dealers have been handing out car loans like candy to anyone with a pulse. In all this flurry of shifting around junk under glossy wrappers, new car loans have been averaging 65 months (5.4 years), with 18% of them at terms of 73-84 months (6-7 years) and the latest marketing brilliance offering terms of 97 months (8 years!). The trouble is that just as with subprime housing loans, those who cannot pay never could. And now interest rates have spiked in the past 3 months, and those with the lower credit scores are facing car loan rates of between 10 to 17% with no wage growth. Sound sustainable?
CNBC’s Rick Santelli discusses rising rates and auto sales.Here is a direct video link.