With a decade of recovery since the Great Recession, the market is starting to experience some wear and tear, Chuck Berend, director of U.S. auto loans for BBVA Bank, told Auto Finance News.
“In auto lending, loan volumes are high, unemployment is very low, consumer spending is up, and everybody wants a car,” Berend said. “These are the good times, right? But at the same time, you can already see the signs of stress.”
For instance, OEMs like Ford Motor Co. and Fiat Chrysler Automobiles have limited production on certain models, which could lead to higher sticker prices. Rising interest rates will likely spur longer loan terms, which can exacerbate/increase negative equity. Earlier this month, the Federal Reserve bumped rates up to a range of 1.75% to 2%, with plans to raise them twice more this year.
Additionally, with consumers increasingly opting for trucks and SUVs, the rising price of gas can make monthly payments less manageable.
“All of a sudden, there’s a point where [vehicles do] become less affordable,” Berend said. “Those things are all kind of out there, but nobody wants to talk about the end of party while the DJ is still playing and the drinks are still flowing. But every party ends.”
