US: booming auto market still faces threats image

While 2014 is certainly going to become one of the banner years for the post-recession US auto industry, prospects for long-term growth are not so positive.

The main threats to the booming auto business, and consequentially to the newfound earnings of carmakers operating in the US come from a surge of long-term loans offered to buyers with a shady credit history and the increased growth of leases. Today, automakers are on pace to their best sales year since 2006, but the dicey credit offerings and the fact that has been a surge in leases that would see cars returning to dealers from 2017 show trouble down the road.

So far, low interest rates, a modest but present job growth and the sliding gas prices have secured the brightest spot for the auto sales in an otherwise not so gleaming overall economy recovery. While at the moment life is great for the auto industry, growing sales trends could ultimately show if the sector has learned its lessons back in 2009. On one hand, the average span of a new car loan is now 67 months, the second longest ever. Also, leasing has reached again more than 25% of all new vehicle dealings, a level not seen since the Great Recession. And to top it all, auto finance companies, banks and credit unions are increasing the rate of approval for subprime loans given to buyers with a shady credit history.