Car companies are taking advantage of low interest rates and expanding their finance arms — so much so that they are nudging out the big banks, Reuters reported this week. Automakers made half of new car loans last quarter, up 37 percent from a year earlier. According to Reuters:
The automakers are in a position to offer the deals because their cost of borrowing has gone down as their balance sheets have improved and as bond investors have lined up to buy securities backed by loans and leases.
Meanwhile, the auto industry is having a good year. In May, car companies recorded their best annual sales rate since before the Great Recession. Here’s an overview:
There is, of course, a chance that the industry has on its rose-colored glasses. Here’s more from Reuters:
The aggressive push by car companies is beginning to raise questions among industry analysts and consultants about whether it is sustainable.
If interest rates rise, the automakers could find the incentives too costly unless they are prepared to take a hit to profits – with any pullback in the deals being offered customers running the risk of hurting demand. And, if used car prices weaken, the financing units could be hit with losses on vehicles coming back from leases and repossessions.