Automotive Blog

What’s so special about the US market recovery which Europe lacks?

Chart For USA Blog Sized

The auto credit environment is a pretty consistent part of US auto market support and the auto market’s recovery since the crash has certainly played a significant part in the general US economic recovery. This is in stark contrast with Europe, despite some signs of resilience - the UK and Germany for example, where the automobile market has languished whilst the market in the US has steadily increased (though it will be interested to see whether the American momentum is sustained if, as is widely rumoured, Mr Bernanke turns off or significantly reduces his monetary printing press which reflects the downturn seen in GDP growth by the OECD in 2013 – albeit that US performance is still way ahead of the Eurozone).

Recent developments have seen US auto credit environment restoring itself to its pre financial crisis state. The ‘American dream’ based on supporting enterprise and creating confidence has played a key role in recent US economic policy which has seen a renewed growth car purchase fuelled by easier credit availability (not scrappage schemes) for consumers and willingness to expand credit risk by the manufacturing and banking community. In Europe, consumer confidence has diminished and, despite record low interest rates, credit is still proving difficult to raise for business and the consumer.

Perhaps the balance between austerity and more risk-averse credit environment and its caustic affect on consumer confidence is holding Europe back? Is the USA, playing with fire and running the risk of creating a further bubble or is it just being its enterprising, risk-taking self?

On May 14th, Experian Automotive in the USA reported that “30-60-day delinquencies and repossessions increase but remain below recession high levels” – in quarter 1 2013, 30 day delinquencies rose 1.3 percent whilst the 60 day rose 12.4% and repossessions rose 16.9% when compared to 2012. However, this is in a background where whilst total dollar automotive loans rose 9.6% to $726bn from $663bn in Q1 2012. It went on to say that “in spite of these increases, overall repossession rates are still relatively low when compared with the peak rate of 0.71% in Q1 2010”. On March 11th, The FT in New York reported, “Subprime car loan securities soar” the FT on March 11th, stating that “sales of risky pools of securities backed by car loans have jumped this year as investors’ search for yield takes them to corners of the market that boomed in the build up to the financial crisis”. The FT report then went on to quote Adrian Miller, director of fixed income securities at GMP Securities that “Credit standards have not deteriorated back to levels seen during the bubble…as long as the economy keeps growing and lenders keep a conservative bias, the jump in subprime auto ABS sales is not alarming.”

This poses the question on the one hand as to whether the nature of US auto credit has changed much since the financial crisis and indeed and on the other hand whether this willingness to take on higher loan risks is aiding US economic recovery without risking another financial failure and credit freeze?

This contrasting situation in the US market recovery and its relationship to auto credit availability is discussed in a little more detail in ICDP’s latest Executive Briefing, “Is the US re-inventing the financial crisis or just returning to business as usual?”

Written by Peter Bailey

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