Slumping Auto Sales Hurt Auto Loans

January 16, 2009

Perhaps the one market to see the heaviest damages besides the mortgage industry is the automotive industry. The American automakers are currently experiencing one of the worst situations in history, with the Big Three facing the serious possibility of bankruptcy.

One of the primary reasons for this lies with the fact that automotive sales are down. In a vicious circle, the lack of auto sales hurts the availability of auto loans, and the lack of auto loans leads to diminished sales.

The American automotive market has depended largely on full-sized trucks and SUVs for decades now. In light of the tremendous surge of gas prices and shrinking lines of credit, people have all but abandoned these types of vehicles in favor of smaller, more fuel-efficient cars. Because of this, dealerships have been hit very hard and are scrambling to try and push larger vehicles off their lots.

The credit crunch doesn’t help matters at all. With a lack of credit comes a lack of opportunities to purchase vehicles, and this is essentially the case with the situation the automotive industry is dealing with. Not only are a lot of people out of luck when it comes to loans, so too are the dealerships that depend on financing to obtain their vehicles. Hardly anybody is lending to one another, which is creating a credit freeze situation that is making life difficult on multiple levels.

It isn’t all bad news, however. Although it is harder to obtain the credit necessary in order to purchase a vehicle, cars and especially trucks and SUVs have all seen dramatic drops in price. Not only that, but dealers are adding on the most number of incentives the industry has seen in history. It can be easily argued that the current circumstances present the best opportunity to buy a vehicle… provided you have the money and the option to get a loan, of course.