Think Freely Media presents Common Sense with Paul Jacob

Auto Destruct

car, automobile, auto, loan, bubble, illustration

Just when you thought it safe to go back into the loan market. . . .

Yes, you guessed it: a bubble may be about to pop.

There are actually several, but here’s one you might not expect: the automobile loan market.

Though less regulated and tampered with than the housing market, auto loans aren’t immune to “moral hazard” and other government-induced dangers. The Fed’s low interest rates are almost certainly stimulating the new car market. “Subprime” car loans are way up and so are delinquencies. Do the bankers making these decreasingly solvent loans expect a bailout?

As Eric Peters notes at his immensely fascinating automobile website, the average car loan is now $32,000, “a record high.” And then there’s the “ever-increasing duration of new cars loans. They are now on average six years long — and seven year loans are becoming pretty common.”

Why? “In order to spread out payments (now averaging almost $500 a month) that have become simply too much to manage for most people.”

But then of course car prices are rising. And not just because of simple inflation. It’s the result of government regulations, mandates, and . . . general craziness. Many buyers now finance used car purchases, too, as Mr. Peters explains. That used to be fairly uncommon. The used-car market has been unduly affected by government insanity as well. Remember Cash for Clunkers? Politicians boasted about their managed destruction of millions of used autos.

What they really achieved was a tighter-than-ever supply of usable older cars.

Cruising toward the auto-destruct of the auto-loan markets.

This is Common Sense. I’m Paul Jacob.


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2 Comments

  1. This situation identifies the idiocy of government imposing programs on us that, if resulting in financial damage to our economy (as most do) does not cost the rule-makers anything because of their decision. And for every “rule” instituted there is the ongoing cost of enforcement, resulting in even more bureaucrats being hired. How do we stop this madness?

  2. Lyle R. Rolfe says:

    Cash for  Clunkers was one of the worst things the government has done. A large percentage of those cars  were in good running condition but had to be “destroyed” by govt rules which meant even the engines and other mechanical parts that could have kept thousands of other cars running, saving their owners money, could not happen anymore. By doing this, it meant more people bought new or newer cars, putting themselves into more debt. How was this helping anyone other than the car dealers? And maybe not even them because many of these cars would have been traded in meaning the dealers would have a larger inventory to attract more buyers. Even the junk yard dealers were really no better off because their yards were being filled with vehicles that had to be scrapped and sold at scrap prices instead of being parted out to others that needed the parts. And of course if they violated any of the govts. strict rules, they were fined. Just another fine example of Obama at work helping screw the people and screwing up the country.  

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