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US credit crash predicted

Posted on 18 September, 2014

The sustainability of America’s automotive industry is being questioned with big discounts and seven-year loans being some of the incentives to entice buyers. Vehicle discounts have risen by 5.5 per cent from a year ago and more than one-quarter of new buyers are opting to lease. Lenders are making more loans to those with bad credit ratings. Annual vehicle sales in the US are set to top 16 million for the first time in seven years, but the demand is starting to slow. Pundits are predicting them to grow 5.5 per cent this year – the slowest pace since the global financial crisis. John Mendel, Honda Motors US sales chief, says some companies are using “short-term tactics”, such as sub-prime loans, 72-month terms and increased sales to rental car companies to pad sales. “We have no desire to go there,” says Mendel, whose company’s sales through July fell by 1.3 per cent. In 2007, spending on incentives came in at just under nine per cent of the average sales price for a vehicle. They dropped to about eight per cent in 2012 and 2013. They are now back up to 8.4 per cent and are likely to rise towards nine per cent later in the year. Based on an average sales price of about US$32,000, extra discounting will cost the industry almost US$5.2 billion per year.