Is the auto industry back to its bad habits? image

With sales slowing down, car makers have recurred to big discounts but also to six or seven-year loans to buyers who would have been turned down in the past because of their credit score.

Vehicle discounts have gone up 5.5% from 2013 and more than a ¼ of new buyers choose to lease cars, which is a record high percentage. The industry is adding plant capacity and the average price of a car keeps growing, forcing customers to borrow money for longer terms to keep payments down.

The U.S. annual sales should reach more than 16 million for the first time in seven years while the consumer demand has declined. Sales are predicted to grow 5.5% this year, but this is the slowest pace since the financial crisis. Most experts argue that the big discounts should increase the sales to 17 million units.

John Mendel, Honda Motor Co. U.S. sales chief openly criticized the competitors who use “short-term” tactics like subprime loans, 72-month terms and increased sales to rental car companies to protect their sales. Even if the company’s sales have fallen 1.3% in July, Mendel stated that “we have no desire to go there.”

Morgan Stanley analyst, Adam Jones commented on the topic “It could be a disaster later on. We’re clearly robbing Peter to pay Paul.”

Jones sees a growth in sales at 18 million in 2017 and then a sink to 14 million just a year later, meaning that factories will have to close, restructuring will be made and thousands of jobs will be cut for companies to break even out of the foreseen future.

By Gabriela Florea