Automotive and Electronics
Automotive Production to See Slower Growth
Twelve-month total vehicle sales increased in a straight-line fashion to 16.2 million units in June from 10.5 million units in November 2009. This total has been higher than 16.0 million units for three consecutive months, and the current rate is the highest it has been since February 2008. In fact, this rate has only been exceeded during the period March 1999 to February 2008 and in the single month of December 1986. Clearly, this is fantastic news for the automotive industry.
While total vehicle sales are still below peak levels from the late 1990s-mid-2000s, outstanding automotive loans are at their highest level ever. The current total is close to $900 billion in debt—more than 10 percent higher than the previous peak reached prior to the most recent financial crisis. The average amount financed per car and the average monthly loan payment (despite record-low interest rates) also are at all-time highs. Real median household income, however, has been in decline, and household net worth is down 36 percent over the last 10 years.
How are consumers able to increase the amount of their automotive loans? Car loan terms used to be a maximum of three to four years, but the average term now is more than five years. To top it off, many of these new car loans are sub-prime loans, meaning there is a significant chance they will not be repaid. So how long can vehicle sales remain this strong when the median individual is suffering from a lower real income? What happens if interest rates rise?
Currently, automotive manufacturing remains strong. Motor vehicle and parts spending continues to grow at a reasonably strong rate. Vehicle and parts production also is still growing at a historically strong rate, although the production rate has slowed dramatically the last two years. It appears that production will continue to grow at a slower rate for the remainder of 2014 and perhaps into 2015.