USA: Lazy car loans threaten car dealers and banks
Money is cheap, yes. But who goes to a dealership these days, gets almost no cheap used, but a vast supply of new and old cars, the actual purchase price is to be sought with a magnifying glass. Instead, there is next to mileage and equipment just a three-digit amount: the monthly credit. Another payment model does not seem to be relevant any more, let’s just say that leasing, which is also supported by banks, will be discontinued.
About every third credit agreement that is concluded in Germany serves to finance a used car (Astro finance). The banking association speaks of 1.9 million vehicles, which were financed in 2006 by credit from its member companies. And according to Statista, 42% of all new cars registered in 2016 are credit-financed.
Growth and prosperity on pump
Now, there is nothing wrong with loan payment per se. Especially when there are no or little additional fees or interest. The liquidity remains with the buyer, the mobility of a smart new car just adds up. Car dealerships are benefiting from higher sales, more and happier customers – and from selling high-priced and even very young models to the cars that give them regular garage-based inspection visits – customer loyalty at its best. Not to mention carmakers and banks, the sale or financing of cars is their business objective.
A win-win-win? No safer. For in the allocation of car loans, it was obviously to fraud and sloppiness. This has been borne in the USA, the country in which traditionally much more frivolously bought on pump than in this country. According to the accusation, banks are not adequately assessing the creditworthiness of their borrowers brokered by the car dealerships and thus have drawn a large number of loans, the installments of which – often even on the first payment – have failed to materialize. A process that similarly triggered a severe real estate crisis in the United States, when ten years ago hundreds of mortgages burst, families “lost” their homes and banks had to write off loans.
The indebted nation
In addition to sloppy checking banks, there should have been car dealerships, the loan applications have manipulated so that even buyers with bad creditworthiness could finance a car. Loans are said to have been distributed in this way to applicants whose wealth, income and life situation does not allow (further) monthly obligations. As a result, the banks have now broken a hundred times business relations with car dealerships. But all this no longer protects against legal consequences. Thirty states are currently investigating subprime lending. A crash, as the Americans know him from the real estate industry, should be avoided at all costs.
Of course, this would not be dangerous to the system – but nevertheless the question arises why the economic power obviously does not learn anything. That which is otherwise a strength “made in the USA”, the high risk-taking namely, the understanding of opportunities instead of the retreat from possible damage, acts almost silly in this matter. After all, 10 percent take car loans in the total debt volume of American households, of about 1,112 billion US dollars is mentioned. Acutely threatened by default, after all, only about two percent. However, in a country where millions of citizens are forced to pay student loans and credit card debt instead of having savings, the issue of installment payments for the car may be rediscounted monthly.
The situation in Germany
How does this look in Germany, how far are we from bad loans? Anyone visiting a German car dealership will find there faster financing than purchase offers. The picture in car dealerships as well as on our streets has changed significantly over the past ten or twenty years. Buying a car with installment is almost a good thing.
It remains to be hoped that the banks behind them will fulfill their task thoroughly by not only advancing money, but before taking their borrowers extensively under the microscope. The German automotive industry has enough to worry about.