May retail sales driven by auto industry

Short term lenders and other loan providers should be optimistic about the coming months after auto sales experienced robust growth in May.

A report recently released by the Department of Commerce showed that overall retail sales were up 0.6 percent in May, as compared to April. The auto industry was the major catalyst behind the spike in sales, as car purchases increased by 1.8 percent in May. It was the greatest level of growth for any industry, according to the report.

For automakers and financiers, trends have been positive during the last 12 months. Year-to-year data indicated that motor vehicle sales have jumped by 8.5 percent compared to May 2012 figures.

The latest retail report featured better than expected numbers. According to economists surveyed by Reuters, total retail spending was predicted to rise 0.4 percent. USA Today reported that a similar poll conducted by Bloomberg showed an expected increase of 0.5 percent.

One of the ways in which lenders are capitalizing on booming vehicle sales is by offering more borrowing options to sub-prime consumers. Providing loans to these individuals is often thought of as a dangerous prospect. However, International Business Times notes that sub-prime auto lending is not as risky as many believe.

According to the source, the Great Recession changed the way many American consumers prioritize their finances. One such adaptation that the American public made as a result of the economic downturn was placing a higher value on their vehicles. Since many individuals need their cars to get to work, many will cut expenses in other ares in order to make their car payments.

Also, the source noted that an active used car market has helped lenders offer financing to sub-prime borrowers. With the market flooded, used car prices have risen as a result of demand. In turn, it has made it possible for lenders to recoup loans via secondary markets.