Advertisement

Auto Industry Rally Makes Financing a Vehicle Easy

Group holding upward arrow
Car ownership has long been an integral part to life in America. Obtaining a vehicle in our young adult lives is often seen as a rite of passage. Additionally, purchasing or financing a vehicle is one of our first and largest signs of independence. Car manufacturers enjoy this element of American culture since they profit from a continued car-enthusiasm that is ingrained in our society. This ingrained car culture is as much a part of America as apple pie, baseball, and freedom of speech.

But unlike apple pie, baseball, and freedom of speech, the auto industry was badly damaged by the recent recession. For years car dealers and manufacturers languished over the poor economic climate that loomed over the country. Borrowers, too, suffered as they failed to qualify for car loans.

That suffering has recently come to an end, as the industry rallied together to make cars more accessible to the nation, much to the joy of borrowers interested in financing a vehicle.

The Numbers Don’t Lie

An industry rally is when an entire industry comes together, regains growth, profits, and comes out of an economic slump.

Last year we saw the price of gas fall substantially. The auto industry noticed that price decline and responded with a two-pronged attack: they launched a surge in marketing and began to lend car loans generously.

From June 2011 to June 2012 sales of domestic cars and trucks rose by a massive 25 percent and overall by 38 percent according to an Auto Nation Inc. survey.

Chrysler, a reputable American car maker, saw a 20 percent increase in sales in June. Two other American car giants, General Motors and Ford, reported 16 percent and 7 percent increases in sales, respectively.

The rally encompassed foreign vehicles as well. The sales of import cars and trucks rose by 56 percent in June.

Toyota, an industry juggernaut, reported a gargantuan 60 percent increase in U.S. sales between June 2011 and June 2012 in a statement by Toyota Motor Sales U.S.A Inc. This highlights just how deep of a hole the industry had crawled out of since Toyota, a Japanese corporation, faced production challenges following the devastating Japanese tsunami of March 2011.

Lenders Follow the Leader

This auto industry rally led to an auto lending rally as well—at least as far as car loans are concerned. Borrowers interested in financing a vehicle have been welcomed by increased subprime lending.

Since April of this year, the auto lending industry as a whole saw a 2.3 percent gain in car loan originations, according to the CUNA Mutual Group’s Credit Union Trends Report. This was the best gain since 2009, accounting for $1.1 billion of the $3.9 billion already accrued this year.

Credit unions in particular have seen a massive increase in used car loan lending, partly due to offering lower rates when compared to other lenders’ offers.

The recession has had an impact on pricing as well.

New cars have simply become cheaper to buy, primarily out of necessity. Car dealerships cannot afford towering markups on new vehicles due to the squeeze on funds that the recession has caused. Even though cars may be more affordable, they are still expensive items at a time when many Americans are low on funds. Dealerships offer increased subprime car loan lending so as to stay afloat and turn a profit amid the brunt of the recession. The recession has also prompted increased frugality for the average American.

Car loan lenders have taken advantage of the public’s unwillingness to spend more by offering lower rates for both new and used cars.

The industry rally may mean more than just increased lending and car ownership. It may be the light at the end of a very dark tunnel called “the Great Recession.” If other industries, such as retail, manufacturing, and construction also rally, then America could well be on its way to standing on its own two feet once again.