Monday, May 21, 2018
Business

Auto industry shows worrying signs, analysts say

DETROIT — Big discounts. Six- or seven-year loans, in some cases to buyers who would have been turned down in the past.

As the auto industry strives to sustain its post-recession comeback, car companies are resorting to tactics that some experts warn will lead to trouble down the road.

Over a quarter of new buyers are choosing to lease, a historically high percentage. Auto company lending arms are making more loans to people with low credit scores. And the average price of a car keeps rising, forcing some customers to borrow for longer terms to keep payments down. It all adds up to sales in the U.S. topping 16 million in 2014, the first time in seven years.

But Honda U.S. sales chief John Mendel last week scolded competitors for using "short-term" tactics such as subprime loans, 72-month terms and increased sales to rental car companies to pad their sales.

Some on Wall Street see a price to pay.

"It could be a disaster later on," Morgan Stanley analyst Adam Jonas said. "We're clearly robbing Peter to pay Paul." He sees sales growing to an annual rate of 18 million in 2017 — then sinking to 14 million a year later. That would mean factory closings, restructuring and thousands of job cuts just for companies to break even.

Not all forecasts are that dire, and no one — not even Jonas — is predicting a repeat of billion-dollar losses in 2008 and 2009. Automakers have cut costs and are better positioned to handle a downturn.

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