The reception desk is shown in the showroom of the Massey-Yardley Chrysler, Dodge, Jeep and Ram automobile dealership in Plantation, Florida October 8, 2013. The U.S. automotive market is contributing more to the economy than it was three years ago. Reuters/Joe Skipper
Buried in Wednesday’s second-quarter U.S. gross domestic product numbers released by the Department of Commerce is data on how much the auto industry’s contribution to the economy has grown in recent years. Amid a robust post-recession auto-sector recovery fueled largely by cheap credit, the contribution to the U.S. economy from new and used motor vehicles and auto parts has risen by nearly one percentage point compared to the second quarter of 2011.
The rise in auto lending has caused some to wonder whether we’re experiencing a replay in the auto sector of the housing bubble that collapsed in 2007, sending the economy
into a recession. The New York Times recently underscored the rise in subprime lending to low-income car buyers. As in the runup to the mortgage meltdown, banks and private equity firms are offering up cash to lend to high-risk borrowers (people with credit scores below 640) at high interest rates. Then these loans are bundled into bonds passed to insurance companies, mutual funds and public pension funds. Subprime auto loans have more than doubled since the end of the Great Recession.
“An increase in subprime loans means that more working-class Americans have transportation when that could be the difference between having a job or not,” Stinebert wrote in a letter to the editor of the Times in response to the story, which reported that some banks are providing false data on loan applications to approve borrowers who clearly cannot pay back the loans they receive.