Crunch looms for Chelsea tractors
AWAY from the election, here’s a game you can play in any town – I do it all the time.
Drive from home to your nearest supermarket and count the number of Range Rovers coming the other way.
In a five-mile stretch my minimum count is two of these cars – starting price £30,000 for the smallest version – and my maximum is 14, though I notice the Audi A5 is becoming this year’s popular replacement.
Few of these luxury mobiles will be bought, the vast majority will be leased, fuelling what experts fear is the next credit crash.
The seven-year boom in car loans has strong echoes of the mortgage frenzy that triggered the 2008 housing crash.
In both cases, big banks and finance companies kept relaxing standards to underwrite loans on the assumption that the asset could be sold if there is trouble paying it off.
But the glut of vehicles coming off lease contracts lowers values and the level of defaults is rising.
In the USA, where cars and car loans are bigger, the New York Federal Reserve bank warned arrears in the sub-prime car-loan sector were a “significant concern”.
The Bank of England have also voiced concern about rising household debt levels.
British households ran down their savings to a record low at the end of 2016, raising fears that the UK is on course for a fresh consumer debt crisis in the wake of the Brexit vote.
Strangely, consumers default on their mortgage first, credit card second and car loan third, so these Range Rovers could be disguising a bigger problem.
In the UK, people didn’t lose their homes in the credit crash but people are starting to lose their cars in the USA and being left with hefty debt.
A car credit crash might be avoided in the UK but could still happen in the US. We could be gearing up for car trouble.