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Trigaux: People in the Tampa Bay area are paying way too much for cars

The average monthly payment for a car loan has shot above $500 for the first time and the average length of car loans is now 5 years and 8 months, both signs that people are likely busting their budgets to pay for cars they cannot afford. (AP Photo/John Bazemore) GAJB201
Published Jun. 10, 2016

When it comes to car buying, concerns are accelerating that too many folks are getting stretched too thin. There's even some talk of a financial bubble.

Certainly not on par with the Florida housing bubble that burst in 2006. But still one that could damage the economy and even hasten the next recession.

That is, of course, a guess. But a good one. What we know for sure is that too many people are buying too many higher-priced new vehicles with too little down while borrowing too much for too long.

After the rough recession and its heavy job losses, demand spiked for new cars to replace aging ones. And banks and auto dealerships have been only too happy to offer buyers low or even 0-percent lending rates, and increasingly longer term loans in order to keep that all powerful number — the monthly loan payment — within more people's reach.

So here's the triple whammy. For the first time:

•The average auto loan for a new car now tops $30,000.

•The average monthly loan payment for a new auto now tops $500.

•The average term for a new auto loan is now 68 months — that's five years and eight months. It's never before been that long.

For every $1 of a new car purchase, 86 cents is typically borrowed money.

Gas prices, still viewed as modest near $2.35 a gallon, are tempting more buyers to consider SUVs and similarly more upscale vehicles rather than smaller, lower-priced cars promising better gas mileage.

With auto sales recently at a near record pace, the amount of money borrowed by car, truck and SUV buyers topped $1 trillion for the first time ever in the first quarter of this year.

The result? A convergence of economic factors has financial experts worried credit-dependent car owners may be getting in over their heads.

It's not just car loans. Broader debt pressures are compounding concerns. A new credit card debt analysis by CardHub projects that we will end 2016 with $1 trillion in outstanding balances — "a threshold never before reached," says the firm, "not even during the period preceding the Great Recession."

Some of that debt worry appears in remarks this month by CEO Jamie Dimon of the nation's largest bank: JPMorgan Chase. Dimon called auto lending "a little stretched" and a market that may not remain a bright spot for long.

"Someone will get hurt in auto lending," he said. "It won't be us."

Maybe. Here's just one of many danger signs flashing. The volume of auto loans outstanding, including those made to buyers with shaky credit, has grown much faster than actual auto sales in the past few years.

Translation? People are borrowing a lot more per car purchase than they used to, upping the chances more borrowers will fail to pay back their loans. Those odds get worse if interest rates start to rise, as the Federal Reserve keeps hinting will happen soon.

Heavier borrowing for longer periods also sets more car borrowers to end up "upside down." It means the borrower is still paying off a loan for a vehicle that, over the years, is no longer worth the value of the loan.

Experian, a credit-tracking firm, reports auto loans with terms lasting 73 to 84 months (seven years) accounted for 30 percent of all new vehicles financed in early 2015. That's the highest percentage since Experian began reporting the data in 2006.

This past week, Buick informed me that only six months after its new Cascada convertible hit the market in January, the Tampa Bay metro area is one of its hottest sales markets. The trick is that the Cascada retails for more than $33,000, and even higher with some bells and whistles.

That's a typical price range for a new vehicle these days. It's also a lot of money for this metro area whose median annual household income is around $50,000.

A 2014 study by Interest.com found that the average household in 24 of the country's 25 largest metropolitan areas cannot afford to pay for the average priced new car or truck. The study based its calculations assuming a car buyer put down 20 percent and took out a 48-month auto loan.

The study found Tampa Bay car buyers could afford less than folks in most other metro areas. Area buyers could handle up to a $14,209 affordable purchase price, with a $280 maximum monthly payment.

That should bounce a lot of area budget-conscious buyers out of the new car and into the used car market. But it's just as likely that plenty of other area buyers are still buying (or leasing) new and expensive cars, simply borrowing more than they should.

After record sales in 2015 for cars and light trucks, there are early signs the auto industry may be losing some steam. New U.S. vehicle sales fell in May, marking the second monthly decline this year.

At Achieva Credit Union in Dunedin, CEO Gary Regoli says his staff of auto lenders tries to work with customers seeking loans for new cars.

Sometimes, he says, the lender looks at a customer's financial profile and sees it may not fit so well with the high-priced vehicle the buyer has in mind. Then the credit union staffer might suggest the borrower consider the values of a Chevy over the luxuries of a Lexus.

It's great advice more folks should embrace. But in this easy-credit, car-loving country, there are apparently a whole lot of deaf ears.

Contact Robert Trigaux at rtrigaux@tampabay.com. Follow @venturetampabay and Like the Robert Trigaux page on Facebook.

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