Bloomberg – Central Bank Balance Sheets as Percentage of GDP 12/6/19
Walk into an auto dealership these days and you might walk out with a seven-year car loan.
That means monthly payments that last well past when the brake pads give out and potentially beyond when the car gets traded in for a new one. About a third of auto loans for new vehicles taken in the first half of 2019 had terms of longer than six years, according to credit-reporting firm Experian PLC. A decade ago, that number was less than 10%.
For many Americans, the availability of loans with longer terms has created an illusion of affordability. It has helped fuel car purchases that would have been out of reach with three-, five- or even six-year loans.
Just 18% of U.S. households had enough liquid assets to cover the cost of a new car, according to a Wall Street Journal analysis of 2016 data from the Fed’s triennial Survey of Consumer Finances, a proportion that hasn’t changed much in recent years.
Even a conservative car loan often won’t do it. The median-income U.S. household with a four-year loan, 20% down and a payment under 10% of gross income—a standard budget—could afford a car worth $18,390, excluding taxes, according to an analysis by personal-finance website Bankrate.com.
But the size of the average auto loan has grown by about a third over the past decade to $32,119 for a new car, according to Experian. To keep payments manageable, the car industry has taken to adding more months to the end of the loan.
The average loan stretches for roughly 69 months, a record. Some last much longer. In the first half of the year, 1.5% of auto loans for new vehicles had terms of 85 months or longer, according to Experian. Five years ago, these eight- and nine-year loans were practically nonexistent.
As a result, a growing share of car buyers won’t pay off the debt before they trade in their cars for new ones, either because the car is in need of repairs or because they want a newer model. A third of new-car buyers who trade in their cars roll debt from old vehicles into their new loans, according to car-shopping site Edmunds. That is up from about a quarter before the financial crisis.
Americans have been borrowing to buy their cars for decades, but auto debt has swelled since the financial crisis. U.S. consumers held a record $1.3 trillion of debt tied to their cars at the end of June, according to the Federal Reserve, up from about $740 billion a decade earlier.
So far this year, dealerships made an average of $982 per new vehicle on finance and insurance versus $381 on the actual sale, according to J.D. Power, a data and analytics company. A decade earlier, financing brought in $516 per car and the sale made dealers $837.
Worthy Insights / Opinion Pieces / Advice
- “Why stealing giant diamonds is a terrible, no good, very bad idea.”
- “When even centrists are circling the wagons, we know we have entered a different world.”
- “Wider uncertainty increases appeal of large, low-cost power projects.”
- “Researchers have caught investors in the act of wildly – and unnecessarily – overpaying for a stock.”
- “Few countries have provided such a perfect example of socialist policies in practice.”
Markets / Economy
- “Utilities say they must be shielded from liability or the electric grid will suffer. Critics say that puts the burden on ratepayers, not investors.”
WSJ – Daily Shot: Bianco Research – Value of US Real Estate relative to GDP 6/15
WSJ – Daily Shot: John Burns RE Consulting – Burns Home Value Index 6/15
WSJ – Daily Shot: John Burns RE Consulting – Burns Intrinsic Home Value Index 6/15
WSJ – Daily Shot: MagnifyMoney – Auto Loan Rates vs. Fed Funds Rate 6/15
WSJ – Daily Shot: MagnifyMoney – Student Loan Rates vs. Fed Funds Rate 6/15
- “The global construction industry is a $10 trillion behemoth whose structures determine where people live, how they get to work and what cities look like. It is also one of the world’s least efficient businesses. The construction productivity rate — how much building workers do for each hour of labor they put in — has been flat since 1945, according to the McKinsey Global Institute. Over that period, sectors like agriculture, manufacturing and retail saw their productivity rates surge by as much as 1,500%. In other words, while the rest of the economy has been supercharged by machines, computers and robots, construction companies are about as efficient as they were in World War II.”
- “For decades, college debt was immune from the bankruptcy process. Judges are actively seeking ways to help debtors.”
- “Xiao Jianhua (Tomorrow Group company) said to be detained in Shanghai a year after being seized in Hong Kong.”
- “Erratic US policy and fraying alliances give China a free hand.”
- “What China is winning is de facto control of nearly the entire South China Sea, including all activities and resources in it, despite the other surrounding Southeast Asian states’ respective legal rights and entitlements under international law.” – Jay Batongbacal, director of the University of the Philippines Institute for Maritime Affairs and Law of the Sea
- “At stake is the huge commercial and military leverage that comes with controlling one of the world’s most important shipping lanes, through which up to $5 trillion worth of trade passes each year.”
- “The country’s economic output is smaller now than it was in 2004, and employment policies are skewed to protecting jobs, not creating them. The number of Italians registered as living abroad rose 60% from 2006 to 2017, to almost 5 million. Among those who stay, it’s common for unemployed young people to live with their parents instead of starting their own families, which is one reason the country has one of the world’s lowest birthrates.”
Other Interesting Links
WSJ – Daily Shot: Terrorism Deaths vs. Coverage 3/8
Worthy Insights / Opinion Pieces / Advice
- “Areas with fewer employers have lower wages.” (Source: Roosevelt Institute)
Markets / Economy
WSJ – Daily Shot: FRED – Total US Consumer Loans owned by Federal Government 3/8
WSJ – Daily Shot: Credit Suisse – Active & Passive Fund Flows 3/8
- “February was a rough month, with both passive and active products losing capital.”
WSJ – Daily Shot: Credit Suisse – Equity Flows by Strategy 3/8
Market Watch – CVS’s $40 billion debt deal to fund Aetna takeover puts credit rating in peril – Ciara Linnane 3/7
WSJ – Daily Shot: Largest Corporate Bond Deals 3/8
Health / Medicine
WSJ – Daily Shot: Moody’s – Pipeline for nursing graduates by US State 3/8
WSJ – Daily Shot: FRED – Average Amount Financed for New Car Loans 3/8
- “The average size and duration of new automobile loans in the US keep rising.”
WSJ – Daily Shot: FRED – Average Maturity for New Car Loans 3/8
- Super rich being those with net assets of $50 million or more.