Will Easy Credit, Longer Terms Trigger U.S. Sales Slump?

Car sales remain strong in the U.S. But analysts are beginning to fret that Detroit is slipping back into bad habits to maintain the momentum, The Detroit News reports.

Sales growth is bound to ease at some point as the proportion of consumers who haven't yet replaced their aging post-recession cars shrinks. Volume in the U.S. market is expected to grow 5.5% this year, the slowest pace in at least six years.

The News cites statistics that make industry observers worry about a sales slump a few years from now. One example: LMC Automotive says about one-third of auto loans today are for 72 months or longer compared with 23% in 2008. Longer terms stretch out the interval until buyers can build enough trade-in value to return to the market.

Likewise, the proportion of leased cars has surged to 26% from 18% in 2008, according to LMC Automotive. A surge in expiring-lease cars three years from now could lower used-car prices and sap demand for new models.

Meanwhile, the proportion of car loans made to subprime consumers (those with credit scores below 620) has climbed above 12%, according to Experian Automotive. Such buyers represent a higher default risk and represent another growing source of used cars flowing back into the market.

Experian says auto repossessions surged 70% in the second quarter, although volume so far represents fewer than 1% of all loans.