May be we have been living in the auto industry bubble, but it's time to look at things from a fresh perspective amid some worrying rounds of new data. The cars are getting way more expensive in light of the increased horsepower and amenities. Unsurprisingly, this rising level of auto luxury has come alongside a surge in the stock market that has buyers willingly plunking down their credit card or some cold hard cash to get a new toy.
The same thing could be applied to non-luxury cars, say mid-size sedans from Ford, Toyota and General Motors. They are receiving hosts of new features that have caused buyers to reach deeper into their pocketbooks. Meanwhile, it's also causing people to trade in their cars more often than they would have in the past, in order to stay up to date. A Ford Focus has turned into nothing more than an Apple iPhone that has to be upgraded every few years. But all this activity has triggered several dangerous trends underneath the glitz and glamour that always surrounds the auto industry. And with the Federal Reserve possibly on track to raise interest rates four times this year, it's time investors pay closer attention to the realities of the auto space.
Auto debt has become a major concern. Losses for subprime auto loans, annualized, were 9.1% in January, up from from 8.5% in December and 7.9% in the first month of 2016. The rate is the worst since January 2010 and is being fueled by worsening recoveries after borrowers default. More than six million U.S. consumers are at least 90 days late on their car loan repayments. It is expected that U.S. new-vehicle sales will be 17.4 million units in 2017, down from 18.4 million last year. Falling auto sales could increase the risk that lenders will be more accommodative and accept riskier loans on new-car sales to remain competitive and maintain or increase loan volumes.