Monday, May 14, 2007

You Can Get "New Car Smell" For $3.99 at Target

by Tanta on 5/14/2007 09:14:00 AM

It appears that people are going to have to keep their cars almost as long as they keep their houses. This is not good news:

Despite a record U.S. population and more licensed drivers than ever, sales of new vehicles slipped nearly 3 percent last year to their lowest level since 1998 and are down the same amount this year.

Analysts and auto manufacturers cite several factors for the sales slide, including high gas prices, sagging home values and sluggish economic growth.

But those who study car-buying habits see another factor keeping a lid on car sales: the aggressive borrowing habits of consumers today.

They say borrowers have stretched out their car loans over such a long period of time that some can no longer afford to replace their vehicle.

"They would like to trade, but they can't. They have no equity," said Art Spinella, president of CNW Marketing Research, which studies consumer buying trends.

Three out of five new-vehicle loans made this year, or 60 percent, are for 61 months or longer, and nearly 20 percent are for longer than six years, according to a Consumer Bankers Association study. Some go as long as 96 months. . . .

As loan contacts have lengthened, so has the amount of time that consumers keep new cars. CNW says the average buyer keeps a car 59 months, up from 50 months in 2001. Most buyers would still like to get a new car every four years or sooner, Spinella said, but now fewer can afford to.

"There has been a two-decade trend to longer maturities. As an industry we have to deal with customers who have an upside-down situation. The bigger issue is that we're dealing with economic conditions that are less than ideal," said Paul Ballew, chief market analyst for General Motors.

"Once the housing correction is behind us and if there is less volatility in oil prices, it should improve. The underlying fundamentals of the industry are still very positive."
If there were only a way to pay those car loans off with a 40-year cash-out refi mortgage, we could return the auto industry to its underlying fundamentals: short-term leases. Once the housing correction is behind us, of course.