DETROIT -- There’s a simple economic reason not to worry about auto-loan delinquencies, says Tom Webb, Manheim’s chief economist.
“The chances of being laid off are the lowest they’ve ever been,” he said, based on initial jobless claims relative to unemployment.
And, Webb reminded his audience during a media briefing ahead of the Detroit auto show, getting laid off is “the No. 1 reason a person defaults on a car loan.”
In other comments, Webb:
Noted that there’s a good reason capital markets keep absorbing rising volumes of auto loans. “We’re in a zero interest rate environment,” he said, “so investors are looking for yields, and auto loans offer those yields.”
Cast a skeptical eye at longer loan terms, saying the auto industry already has “done damage by putting people in terms more suitable for a mortgage.” He added, though, that the longer terms are ameliorated somewhat by record leasing levels.
The downside of longer loans differs on the new- and used-car sides of a dealership, he said.
On the new-car side, “If you didn’t put the right person in the right vehicle, they can’t get out” of the loan when they want to buy another new vehicle, Webb noted. The cost to the industry, therefore, may be a delay in the next sale, but the real cost is “customer satisfaction, primarily,” he said.
On the used-car side, inappropriately long loans, engineered to help consumers afford their car payments, can bring higher repossession rates and greater losses on those repos.
Webb’s conclusion: If the sales and finance and insurance staffers “knew which person to put in a long-term loan and which to put in a lease, no problem.”
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