What’s Your Take on the Economy?
Despite President Obama’s efforts to assuage fears of economic collapse, the stock market is taking a beating today ― already the Dow is below 11,000 and the Nasdaq has lost 6%. At the root of the freefall are Standard & Poor’s downgrades of U.S. long-term debt, Fannie Mae and Freddie Mac, and a handful of other financial institutions to AA+ from AAA.
Are we headed for a double-dip recession? What does this mean for auto finance?
The way I see it, the current economic turmoil is just another bump in a slightly longer road to recovery. Consumer confidence has been sour for years now; we were only minimally past the point that people were buying cars out of want, not need. So we may slip back into the need-based scenario a little longer, but I doubt 2011 vehicle sales will come in too much lower than anticipated.
As for loan performance, I think delinquency rates will remain pretty stable. Consumers are in much better financial positions these days, so even gyrating stock markets and an uncertain economy will do little to push them into default.
According to S&P, “the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge.” Might things be back on the right track come Election Day?
Comments 3
Leave a Reply
Default rates will be supported by strong used car values. If a borrower has owned a car for over 3 years and drove normal miles, they probably have some equity and will not let the car go to repo.
As for the economy, “We have met the enemy and the enemy is us”. This morning, China delivered the same message to us. A message we did not want to hear. But as the saying goes – The Truth will set you free! But first it may make you very miserable! It will test the credit administration skills of staff in Auto Finance to walk the line between intelligent lending and overly prudent risk control.
Wall street is fickle. The key is construction – and the oversupply that built up by 2007 will take some time to work out – it is doing so (only building half the normal need, and prices are finally where a first time home buyer can think about getting into a house.) So give it another 12 months and most of that will have worked out and construction can start to grow back to a reasonable level and that will put a lot of folks back to work. They will want cars, and we’ll get to where we need to be – regardless of who is in white house or Congress. Small business matters a lot more to the economy than either Washington or Wall Street.
For the economists out there:
Which produces more government debt? Cutting spending to keep up with the drop off of tax revenue in an effort to balance the budget in a down economy? OR trying to support the economy through stimulus?