As the auto industry strives to sustain its post-recession comeback, car companies are resorting to tactics that some experts warn will lead to trouble down the road.
Vehicle discounts have risen 5.5 percent from a year ago. More than a quarter of new buyers are choosing to lease, a historically high percentage. Auto company lending arms are making more loans to people with low credit scores. The industry is adding factory capacity. And the average price of a car keeps rising, forcing some customers to borrow for longer terms to keep payments down.
Annual auto sales in the U.S. should top 16 million for the first time in seven years. But the pent-up consumer demand that has driven sales is ebbing. Sales are predicted to grow 5.5 percent this year, the slowest pace since the financial crisis.
The big discounts and other steps eventually should help push sales above 17 million, most experts say. But
"We have no desire to go there," said Mendel, whose company's sales through July have fallen 1.3 percent, trailing the industry.
"It could be a disaster later on," says Morgan Stanley analyst
Not all forecasts are that dire and on one — not even Jonas — is predicting a repeat of billion-dollar losses and cars piling up on dealer lots. Automakers have cut costs and are better positioned to handle a downturn than they were in 2008 and 2009.
Still, easier credit brings back not-so-fond memories for at least one auto dealer.
"It just seems like 2007 all over again," said veteran
Among the numbers that concern some experts:
— 12.7 percent: The year-over-year increase last quarter in auto loans to "Deep Subprime" buyers — those with credit scores lower than 550. Loans to "subprime" buyers (credit score lower than 620) rose 5.3 percent, according to
— 32 percent: Percentage of auto loans that are 72 months or longer, up from 23 percent in 2008, according to
— 26 percent: Percentage of sales that are leases, up from 18 percent in 2008, according to LMC. A flood of expiring leases in three years could depress used-car prices, hurting new car sales.
— 70 percent: The increase last quarter in auto repossessions, according to
Based on an average sales price of just over
"This was the trap that got everyone in trouble before the recession," Brauer says.
Others are more sanguine.
Former Hyundai U.S. CEO
All automakers report sales on Wednesday, and most analysts are predicting the numbers will be flat compared to 2013. That's still a strong month, with an annual sales rate of 16.5 million or more.
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