Here is some interesting automotive news for you that has bearing over our two-wheeled world, as CNN is reporting that more Americans are behind on their car loans than ever before.
The news accounts for two trends that we are seeing in the United States. One, the decline of automobile ownership; and two, the rising debt load amongst citizens, especially millennial buyers.
What this translates into the car world – namely that buyers are increasingly defaulting on their auto loans – likely bears the same reality in the motorcycle industry, since so many motorbikes are bought through financed payment schemes.
According to CNN’s report, the New York Federal Reserve is tracking that 7 million car loans were past due by at least 90 days in the fourth quarter of 2018.
That figure represents 1.3 million more past-due car loans than during the previous peak, which was in 2011, at the height of the Great Recession. Of note, the unemployment rate in at that point in time in 2011 was more than twice its current level.
This news paints a picture of how the economy is booming on paper (or at least has been booming on paper, as we seem to be heading into a slower global economic situation), but still automotive sales have lagged behind, primarily because of the debt load being faced by buyers.
The assumption is that citizens have not fully recovered from the Great Recession, and still carry significant debt from the last economic bust.
Combine that with younger buyers who face substantially higher debt burdens from student loans, rental prices, and credit cards, and you have a recipe for financial distress despite a seemingly healthy job market and economy.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market and warrants continued monitoring and analysis of this sector,” echoed the report issued by the Federal Reserve.
The Fed attributes several factors to the rise in loan delinquency, first of which is the rise in buyers with low credit scores, who are more likely to be buyers who default on loans.
The other reason though has some saliency to the motorcycle industry, as the Fed notes that the prices of new cars, like the prices of new motorcycles, have gone up considerably in the past 10 years, which makes the payments higher and last for longer durations.
All-in-all, it looks like a bubble is being created in the automobile lending space, which could easily carryover to the two-wheeled realm.
With there being no shortage of OEMs offering low-interest rate offers on bikes right now, one has to wonder if that will create a financial crisis for those brands if their buyers fall into the same trap as what we are seeing on the car side. As such, keep an eye on this space.