The auto industry is, to many, the crown jewel of American manufacturing. For Trump, it’s the foundation of his economic plan to bring back manufacturing jobs. But while Trump, and the industry, would like to believe that the circumstances that lead to the 2008 bailout that nearly saw two of Detroit’s Big Three cease to exist are a thing of the past, it appears the financial road ahead will be rough at best.
Last week, multiple alarms sounded across the auto industry that the recent good times, which saw seven straight years of increases capped by a record-breaking 2016, may be about to end. January and Feburary saw declines, and with March’s numbers, the news was even worse.
At issue are car loans. Americans currently hold $1.2 trillion in car loan debt, and credit bureau TransUnion reports delinquencies in auto loans have risen 21% over the last five years. TransUnion views this as simply the natural result of increased subprime auto lending, but that worries analysts as that’s a rapidly increasing (and also rapidly collapsing) section of the auto loan market.
Part of the problem is the housing crisis is being repeated, to some degree, in miniature. The same gold rush on consumer-loan backed securities that ultimately led to the 2008 crisis is reflected, to many, in the current financing models of how we buy cars. As the Fed begins to raise interest rates, Wall Street is becoming less willing to extend credit to automakers or their financial arms. That credit has been absolutely crucial to industry growth, as the average price of a new car has crept up to nearly $34,000.