News & Resources

Is excitement over the US auto industry warranted?

Jan 19, 2012 Randy Mosteller

A number of recent reports have alluded to a considerable recovery in the U.S. auto industry. While Bloomberg reported that 2011 was the strongest year for auto sales since 2008, delinquency rates on auto loans have fallen substantially. But does it all mean the industry is recovering? The reality of the situation can be boiled down to financing and consumer demand. While lenders tightened their credit decisions and standards following the economic collapse, they are beginning to realize that in order to grow they must be flexible. However, despite improving consumer sentiment and employment trends, risk is a paramount factor in making credit decisions, and many lenders do not seem to appreciate the weight of high credit risk in the auto financing sector. "The auto industry, the positive hype, the headlines pro or con, is a good example of a capital market that seems temptingly transparent to the intelligent 'little guy,'" writes Christopher Faille for Forbes magazine. "Such considerations might send you down the slippery slope to day trading, responding to the headlines and with the crowd rather than ahead of either."