Stretching to make car payments?

Elmendorf agrees. "To have growth, you have to stretch your lending requirements. (But) the auto industry has avoided the subprime problems so far."

Repossession rates "haven't changed for some time," says Spinella. Research shows that people will stop making house payments and credit card payments before they'd stop making the car payment, he says.

"Car payments were the last to go," Spinella says.

Prices up or down?

The bankers' study also said buyers were spending about $200 less. In 2005, the average purchase price was $23,500. In 2006, the latest numbers used for this June 2007 study, it was $23,300.

But other industry measures show transaction prices on cars increasing slightly. For 2006, the average buyer paid $26,740 for a vehicle, according to statistics from J.D. Power. In 2007, the price has climbed to $27,393.

At the same time, it's "a favorable environment for consumers because of the intense competition," says Libby, of J.D. Power.

Leasing, which is especially popular with consumers who want to drive more car than they might be able to buy, is stabilizing or dropping, according to recent data. The actual number of leases is down, the bankers' study says.

"Leasing, in recent years, has been marked by subsidies by the manufacturers," says Elmendorf. Those subsidies meant that buyers drive more car for the money.

These days, "fewer banks are promoting leasing and the manufacturers are not stressing leasing with their subsidies," he says. The study cited a 21% drop from the previous year, as reported by lenders. But Elmendorf cautions the sample study on leasing is about half the size of that for the rest of the survey. Another industry measure predicts that leasing is fairly level.

Statistics from J.D. Power indicate that 20% of buyers in 2006 chose to lease. In 2007, that figure was up to almost 21%. "We show leasing relatively stable around 20%," says Libby.

When it comes to buying a car, consumers have a lot of power -- if they elect to use it. "They need to shop for financing as well as they shop for the vehicle itself," Libby says. About 54% of buyers finance through the dealer, while 25% pay cash or use a loan from a bank, credit union or other source, according to statistics from J.D. Power. The remaining 21% lease.

"Overall, there's a lot of debt," Elmendorf says. "And if you add that to credit card debt and home-equity debt, consumers are pretty tightly leveraged these days."

This article was reported and written by Dana Dratch for Bankrate.com.

Published Sept. 4, 2007

< previous |  1 | 2 |