Economic Perspective: Can A Slowing Auto Market Endanger The Economy?

MARY WALDEN:

“Today’s program asks, ‘if a slowing auto market will send the economy off the road?’ Mike, after sizzling for several years there are signs of concern in the auto buying market. What’s happening, and should we be concerned?”

MIKE WALDEN:

“Well certainly we had a booming auto market when we came out of the Recession. Part of this was due to the fact that people, during the Recession, couldn’t afford to buy new cars. But starting around 2011, and continuing until very recently, that market has boomed; record setting numbers of sales in the auto industry, very cheap financing and the auto dealers tended to lower standards for getting credit.”

“Today though we’re seeing perhaps the chickens coming home to roost. We’re beginning to see delinquency rates among those who’ve borrowed money to buy cars going up, and we’re also seeing the dealers responding by saying, ‘Oh we better watch this. We better raise our standards.”

“As a result, we’re seeing auto sales actually taking some dips. Now, is this a big enough concern to, perhaps, put the entire economy in jeopardy? No, I don’t think so. Most economists don’t think so. If you look at the loan market for auto it is tiny compared to, for example, the housing and mortgage market as well as the student loan market.”

“So I think this is a sector specific issue which looks like the auto sector is beginning to deal with. It’s something of course to watch. People who’ve perhaps overextended themselves in buying their favorite new vehicles need watch their payments, et cetera. It’s something that’s definitely changed from the hot market we saw in recent years.”