More Worrisome Economic Indicators

[JRSWRITER]

“SAN FRANCISCO -- The next five months or so will be difficult ones for U.S. auto dealers, with sales expected to slump, but the chief economist for the National Automobile Dealers Association expects a bit of a rebound in the second half of the year. Still, economist Paul Taylor predicts U.S. car and light truck sales will drop to about 15.7 million for the full year. That's down about 2.5 percent from the 16.1 million vehicles sold in 2007, the worst year in a decade, and down 1.3 million vehicles from the 17 million sold as recently as 2005. At the NADA's annual convention in San Francisco, Taylor predicted slow economic growth and weak sales during the first half of the year, with unemployment and credit problems lingering. "Energy costs of gasoline, home heating and cooling will continue to drain money from consumer budgets and slow down consumer spending," he said. Other economists and industry analysts have predicted U.S. sales as low as 15.5 million, while some automakers have predicted up to 16 million.” http://www.detnews.com/apps/pbcs.dll...0080210/AUTO01 Over the weekend my wife and I chaperoned an HBCU college tour. While riding along Route 13 in Delaware, I noticed many new and used car dealerships whose lots were chocked full of cars. To me this signified an inventory overflow. In other words cars aren’t selling. As I started writing this piece, I checked on the predictions for 2008 regarding auto sales. Most auto industry watchers feel 2008 will be a slow year for US auto makers. What’s not being discussed in the corporate media amidst all the talk about mortgage defaults, the credit crunch and economic meltdown are the slump in auto sales and rising auto repossessions due to borrowers’ inability to pay the car loans. AmeriKKKan consumers are being stretched to the limit. It is becoming harder and harder to make ends meet as the ends get farther and farther apart. “A growing number of Americans are buckling under the weight of debt as the troubles that started among homeowners with subprime mortgages last year spread to other consumers who rely on credit. Auto loan borrowers are having an especially hard time. The number of people more than 60 days late on their car payments has spiked to a 10-year high, according to Fitch Ratings. Similar problems are brewing for credit card holders. Card balances written off as uncollectible by banks have jumped 24 percent, and late payments are up 16 percent from a year ago. Like the mortgage market, consumer credit boomed in recent years as lending standards loosened. Unorthodox auto loans lured consumers to buy cars they otherwise couldn't afford. Credit cards teased holders with introductory rates that soared after a few months. Now, more people are struggling to keep up with their bills under the strain of growing job losses and an economic downturn.” From Foreclosure Signs to Auto Repo Lots Easy Credit Gives Way to High Consumer Debt and Defaults By David Cho and Nancy Trejos Washington Post Staff Writers Monday, February 18, 2008; A01 http://www.washingtonpost.com/wp-dyn...t/article/2008 While driving around, take a look at the new and used car lots in your neighborhood. Ask yourself if they seem larger than this time last year? If so, that is because more people can’t afford to purchase a new car, hence the large new car inventories. The rise in inventories on used car lots is from lack of sales and repossessions. Repossession occur when cars are reclaimed for lack of payment. “About 1.5 million cars a year in the U.S. are repossessed from owners seriously in arrears. That’s expected to increase, as the auto-financing industry anticipates more loan delinquencies in 2008, according to a survey of lenders. ‘Better than 50% of respondents project that,’ says JJ Hornblass, chairman of the Auto Finance Summit, an annual industry conference. ‘It is consistent with a poor credit-performance environment. More lease delinquencies also are expected.’ It will be ‘a tricky environment,’ he says. The forecasted rise in repos would continue an upward trend that started in 2006 when 1.4 million vehicles were confiscated, a 5% increase, according to Manheim Consulting. Tom Webb, chief economist for Manheim, estimates delinquency rates increased repossessions by 10% in 2007.” Dude, Where’s My Car?’ By Steve Finlay WardsAuto.com, Jan 11, 2008 http://wardsdealer.com/latest/wheres_my_car/ Given the economic realities we can expect this trend to continue as more folks lose their jobs (home building is at a crawl, GM is offering buyouts to thousands of its workers and Ford and Chrysler may follow suit), inflation soars and economic conditions worsen. “Car loan holders are not only missing their payments. They're increasingly losing their vehicles. The number of repossessions soared last year by 10 percent and is expected to rise by the same amount this year, said Thomas Webb, chief economist for Manheim, a global car auction firm. Repo lots are getting full, he said, adding that the troubles mean ‘banks will be looking for more money down, which means most consumers will probably have to buy a lower-priced vehicle.’That would have consequences for the auto industry. Lehman Brothers said in December that it expected U.S. auto sales to drop this year because many consumers will find it tougher to get auto loans. The bank said in its report that General Motors, Ford and Chrysler will feel the worst of the downturn because customers with questionable credit account for a higher percentage of their sales than those of European and Asian brands.” From Foreclosure Signs to Auto Repo Lots Easy Credit Gives Way to High Consumer Debt and Defaults http://www.washingtonpost.com/wp-dyn...t/article/2008 The sad reality is this trend is rippling into other areas. The money, credit and bill paying squeeze it is not just confined to home and auto loans. It is spreading to credit cards and the least reported ripple is in the area of student loans. “A new analysis of National Center for Education Statistics data shows high student loan default rates for Black and Hispanic students, students who leave college with a heavy debt burden and college graduates who take low-paying jobs. The NCES data, which disaggregates default loans by student characteristics, paint a picture that’s much different than U.S. Department of Education statistics. The department recently announced that the percentage of students who failed to repay government student loans within the first two years of repayment was 4.5 percent. But NCES data, which is a 10-year follow up on the debt status of students who graduated in 1993, puts the overall default rate at 9.7 percent. NCES also found that students with $15,000 in loans were nearly three times as likely to default on their loan than a student with $5,000 in loans. Graduates with the lowest salaries in the cohort were four times likely to default than those with the highest salaries.” Study: Student Loan Default Rates Highest Among Minorities by Diverse staff Oct 24, 2007 From Diverse Issues In Higher Education Loan defaults of all kinds are rising. As they continue, banks and lending agencies are taking action. They are charging higher rates for missed payments, aggressively reporting late payments to the credit reporting agencies. With regard to late payment or defaults on auto loans, one response is to repossess the car. So if you are awaken one day or night and discover your car gone, it may not be a case of auto theft. It may be the bank using a repo man to get their car back. -30-

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