Has the Automotive Industry just peaked?

"You can't see a bubble until it bursts"

On March 31st 2017 the StatsAuto team published a blog post called 'The Car Loan Bubble':

To recap, we mentioned the following information:

Is there a car loan bubble? Unfortunately Yes! However, when will it burst and what will happen? Those are the most pressing questions.

Negative Equity can impact us all! The keys are to:

Educate consumers about depreciation and contract terms lengths.
Make it mandatory for dealers to explain how lengthening your contract terms changes your circumstances.
Be aware that the last few years were record years in terms of car demand in North America, so...
1. Expect a slow down in the automotive industry because an increased amount of people will be out of the market for a longer period of time.

On September 7th car dealers received an email for the Ontario Motor Vehicle Industry Council (OMVIC) essentially making it mandatory for dealers to explain negative equity. Hence, our #2 key above was identified. To quote the email they say

"The Motor Vehicle Dealers Act (MVDA) requires that contracts accurately depict the true nature of the transaction: this includes accurately identifying negative equity"

Picture provided by OMVIC in the Dealer Bullitin

What's happening is that dealers are burying the negative equity so that consumers aren't aware of this. All those numbers in the above bill of sale maybe to complex for the average person to comprehend. That's why our goal at Statsauto is to create savvy car buyers !

Okay so StatsAuto was right about (2) things: The second fact being much more grave however, and it's the slow down of the automotive industry in North America. For the first time in recent years auto sales in the United States fell 1.6% in August according to USA Today published on September 15th 2017. It paints a larger picture that the US Auto market was in a boom period for several consecutive quarters. This recent news comes on the heels of North American banks raising interest rates. Tough times are ahead for the automotive world and the individuals that will suffer the most are the ones who are currently leasing cars on long terms of 5+ years.

We recently heard about lease terms up to 9 years on pick-up trucks. If you weren't aware, the pick-up truck category was the best performing category for many years with record sales every quarter. It now seems that dealer have resorted in providing ludicrous 9 year lease terms in order to keep sales up.

To sum everything up, StatsAuto believes the automotive bubble has burst. What to expect in the coming quarters:

1) Resale values of used cars substantially eroding as variable interest rates on leases have risen. More of the money you pay per month is applied to interest rather than towards the principal value of your car.

2) Dealership sales will decrease as people on long lease terms will now be out of the auto market for a long time. The decrease in sales will bankrupt certain automotive dealerships.