It seems that if the monthly payment is right, then no matter how "Sarcophagus-like" GM's cars are [6], Americans will lever up and buy 'em. Many were shocked to hear that GM reported the highest sales this month since August 2008 - especially in light of the record-breaking recalls and now Reuters reporting that up to 74 people have died from faulty ignition switches - but one glance at Experian's auto loan data and it's clear why... The average loan term and average amount financed for a new light-vehicle hit record highs in the first quarter, signaling U.S. consumers continue to extend themselves to afford pricier cars. GM cars may be "grenade-like" [6] but US consumers - with stagnant wages - are extending maturities (loans with terms 73-84 months grew by 27.6%) to manage that monthly nut... [7] This will not end well.
First we are treated to exuberance this morning...
- *GM MAY U.S. AUTO SALES UP 12.6%, EST. UP 6.4%
- *GM REPORTS BEST MONTHLY SALES SINCE AUG. '08
- *GM MAY SAAR FOR LIGHT VEHICLES ESTIMATED AT 16.5M
Great news, right... and extrapolate that (even as inventory levels on dealer lots remains just shy of record highs).
Which is all very surprising given that Reuters reports that... [8]
At least 74 people have died in General Motors cars in accidents with some key similarities to those that GM has linked to 13 deaths involving defective ignition switches, a Reuters analysis of government fatal-crash data has determined. Such accidents also occurred at a higher rate in the GM cars than in top competitors’ models, the analysis showed.
...
GM, which has offered few details of the fatal crashes related to faulty switches, told Reuters it derived the tally of 13 deaths from claims and lawsuits filed against the automaker. GM checked those claims and lawsuits against other sources available to it, including vehicle data recorders recovered from some crashes.
The Reuters analysis relied on the FARS database, which encompasses a much wider universe of accidents. GM declined to say whether it had used information from the federal database.
But the reason why "rolling-sarcophagus" "kevorkianesque" car sales are so robust is simple... easy credit...
- Average automotive loan term reaches record high of 66 months; loans with terms 73-84 months grew by 27.6%
- For new vehicle loans, the average credit score was 714, down from 722 in Q1 2013.
The average loan term, average monthly payment and average amount financed for a new light-vehicle hit record highs in the first quarter, signaling U.S. consumers continue to extend themselves to afford pricier cars, Experian Automotive reported today.
Lease penetration also hit a record high in the same period in another sign consumers are willing to leverage their spending power to afford more expensive vehicles.
"As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,"
...
Experian Automotive said the average new-vehicle loan term reached 66 months in the first three months of the year
Also in the first quarter, the average amount financed on a new-vehicle loan was $27,612, an increase of $964, or 3.6 percent. For used vehicles, the average amount financed was $17,927, up $395 or 2.3 percent.
At the same time, Experian Automotive said leasing hit a record 25.6 percent of all new-vehicle sales volume in the first quarter, up from a previous high of 24.2 percent in the fourth quarter of 2013.
As it seems cash-for-clunkers as well as recent sales is maintaining prices in the used car market and thus reducing the cost of leasing (depreciation) relative to buying (financing)...
[9]
Market share for nonprime, subprime and deep subprime new vehicle loans rose slightly in Q1 2014 to 34.34 percent.
So the Fed's reach for yield has created demand for yiled-providing CDOs stuffed full of auto loans, no matter the risk... when has that ever gone wrong?
Imagine how great GM sales would have been if 74 people had not died and record recalls had not happened.??
[10]