On the surface, sales reported by the automakers are exuberant. They show consumers are spending. And if this continues, maybe we will see some economic growth in the U.S. In the event you loved this information and you would want to receive more information regarding Manitoba generously visit our webpage. economy.
Sadly, this is a one-sided conclusion. When I look into the details, it turns out Americans are indeed buying cars from automakers—but on borrowed money.
Here’s what you really need to know other than just focusing on the sales by automakers:
Since the Federal Reserve introduced its easy monetary policies, there has been a significant increase in auto loans to the subprime borrowers—those with a low credit score of less than 620—compared to the prime borrowers—those with a credit score of 760 and above. (Reminds me of the housing crisis we saw in the U.S. economy not too long ago.)
In the second quarter of 2009, there was $10.8 billion of outstanding auto loans to the subprime borrowers in the U.S. economy. Fast-forwarding to the second quarter of 2013, this number stood at $21.2 billion—an increase of more than 96% in just a matter of a few years. In the same period, the amount of auto loans to prime borrowers only increased 38%! (Source: Federal Reserve Bank of new York web site, last accessed September 10, 2013.)
Unfortunately, the problem doesn’t end there. Auto loans continue to increase in the U.S. economy. In the second quarter of this year, auto loans as a whole increased to $92.0 billion—the highest level since the third quarter of 2007.