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Auto loans slow in August blip

[Oct 10, 2011.]


Last Thursday, many economists seemed confident that the Fed's consumer credit figures for August, due out the following day, would continue to show rises. Early on Friday morning, Bloomberg Businessweek published the results of a survey of economists, who on average expected borrowing to rise by $8 billion.

Well, we should be used to economists being wrong by now. (Your blogger is fond of the old saying, "Economists were invented to make astrologers look good.") And, sure enough, when the actual figures for all consumer credit--except loans secured against real estate--were released by the Federal Reserve they showed a drop of $9.5 billion, compared with a rise of $11.9 billion in July.

The Fed doesn't break out statistics just for auto loans, but rather wraps those up within its "nonrevolving credit" category, which also includes student loans and those for mobile homes, boats, trailers and vacations. The total amount of these fell by $7.3 billion in August to $1.655 trillion, down from $1.662 trillion in July. As The San Francisco Chronicle reported, this nonrevolving credit "slumped by the most in three years."

Why auto loans are down

Speculating on why consumer credit fell, The Los Angeles Times identified three possible reasons:

  1. High unemployment rates

  2. Stagnant pay

  3. Higher prices, especially for gas

Together, these have created what some see as a crisis in consumer confidence. Last week, the Discover U.S. Spending Monitor announced the latest findings of its continuing four-year tracking poll. It said that, in September:

A record 57 percent of Americans said their personal finances were worsening, a jump of 4 percentage points [from those] who said the same in August and 1 percentage point higher than the Monitor's prior high of 56 percent in November 2008.

Auto loans set to recover?

The same San Francisco Chronicle article referred to earlier had better news for lenders and borrowers of auto loans. It cited industry data on new vehicle sales in September (remember, the Fed's data covered August) that showed strong growth, pretty much across the board. And it quoted Chris Rupkey, who is chief financial economist at the Bank of Tokyo-Mitsubishi in New York. In response to those strong vehicle sales, he said: "Weak economy or not, non-revolving credit is going to bounce back in September."

So, right now, the Fed's figures look more like a blip than a reversal of the rising trend. And there's certainly no reason to be concerned that you're less likely to qualify for the loan you want now than you were last month. As Fox Business said last week, echoing earlier advice on rebuild.org's auto loans news blog: "Securing a car loan is getting easier regardless of your financial situation."

Having said all that, the economic future remains decidedly uncertain, and some day soon it may become more difficult to borrow for anything. So if you're thinking of changing your car, now could be the ideal time to start shopping around for competitive quotes for auto loans.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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