Another Financial Bubble? U.S. Auto Sales Rise Dramatically

By on December 5, 2012

by Iain Davis

With the 2008 financial crisis still lingering in our economy, another mini-bubble regarding the auto industry could be inflating for US consumers and producers. In November, US auto sales rose dramatically to its all time high in over four years. Cheap financing and low interest rates point to the obvious culprit.

Sales of cars and small trucks have increased 15% to 1.14 million last month compared to last year. The adjusted annualized sales rate was 15.5 million in January 2008. The auto sales market has seen its biggest increase since the financial crisis. Specific sales numbers and percentages are listed below:

General Motors (GM): +3%, 185,505 new sales
Ford: +6%, 177,092 new sales
Toyota: +17%, 161,695 new sales
Chrysler Group: +14%, 122,565 new sales
Honda: +39%, 116,580 new sales
Nissan: +13, 96,197 new sales

December sales are expected to increase even more dramatically than in November, believes Kurt McNeil, vice president of US sales operations for General Motors. With the holiday season fast approaching, new cars and light trucks may be on the wish list for families around the US.
American auto producers will be increasing production by an average of 11% to adjust for the latest demand for the holiday season.

Although the news of auto sales rising may seem positive for the struggling economy, there could be a major problem. The cheap financing and low interest rates that have consumers going rampant at local auto dealers could evolve into another financial bubble. This “mini-bubble” could be detrimental to the already slugging economy. The low interest rates have increased the price on cars, demand is booming, and this could be a deadly mixture for an economy that is hoping to recover. The question lingers, “Is this another bubble?” Some may say so, but most will say not. While mainstream economists focus on minor government spending cuts, such as the fiscal cliff, issues that involve poor lending standards tend to be ignored and perhaps positive in the Keynesian eye. After all, they do believe consumer demand drives the economy.

While interest rates may be low and this could have a fatal outcome for the US auto industry, there could be an optimistic side for responsible borrowers and lenders. A person with an outstanding credit rating and appropriate income could get a deal on financing at zero-percent. Discounts rose at around 4.4% according to TrueCar.com, so this could be the time to buy if you’re responsible.

While savings remain low and credit increases, many wonder whether this can continue to an appropriate path. Although the obvious answer shows auto sales increasing and a recovering economy, the long run could be a problem. America continues to have an incredible trade-deficit, massive national debt, and Federal Reserve with artificially low interest rates. The economy is heading down a downward spiral and time will tell if anything truly gets any better, and the government will practice the long needed austerity in the market.

Image Reference:

Isidore, C. (2012, December 3). Car sales bounce back from Sandy. CNNMoney. Retrieved December 5, 2012, from http://money.cnn.com/2012/12/03/news/companies/car-sales/?hpt=hp_t2

About Iain "JD" Davis

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