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The credit crunch isn’t just taking a bite out of the housing and boating industries. The automobile industry is starting to feel the effects of limited credit and reduced consumer spending. Automobile sales for 2008 are on pace to be the worst in more than a decade. During the housing boom more than 1 in 9 auto purchases was financed in part by a home equity line of credit. Now that HELOC’s are being frozen and property values are declining consumers have run out of available cash to purchase new cars.
As mortgage payments have ballooned and credit has become more expensive late payments on cars has started to tick up drastically as well. This combination of tightened lending guidelines, reduced profits and a deteriorating economy paint a bleak picture for the near-term future of the automobile industry.
From the New York Times on the spreading ills of the credit crunch to the auto industry:
?It is a bleak picture, and it all hinges on the availability of financing,? said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. ?The whole universe related to the auto industry is touched in some way ? parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors.?
As the pool of money available to auto lenders has dried up, they have cut back on making new loans. Since late last year, nearly every auto finance company has tightened its lending standards. They are forcing borrowers to put more money down. They are also demanding higher monthly payments and requiring stronger credit records and more stringent documentation.
Subprime auto lenders have been forced to pull back the most. AmeriCredit, a big subprime finance company, said it would issue about $3 billion in new auto loans this year, compared with $9.2 billion in 2007. That translates into around 340,000 fewer vehicles being financed this year. But lenders catering to less risky borrowers are also retrenching.
?Capital One is pulling back, Citi is pulling back, HSBC and Wells Fargo are pulling back,? said Mr. Ryan, the analyst. So are the finance arms of the major automakers, like GMAC, Chrysler Financial and Ford Motor Credit. ?What you are seeing at AmeriCredit is probably happening everywhere else, but probably to a lesser degree.?
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
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