Auto sales under cloud even in strong economy

The big economic headlines scream about a better jobs picture, one-time bonuses and a ginormous rally on Wall Street. All good things that could keep driving car sales.

But untold stories of economic anxiety cloud the picture, too.

It’s a mixed economic bag, where some consumers are doing very well and others remain hopeful that the economic recovery hangs on long enough to grab them on board.

While much news is good, some businesses continue to restructure and let go of some employees, all of which could influence car sales.

The good news for the auto industry is that many consumers are cashing paychecks with the U.S. jobless rate at 4.1 percent in December. And many lower-paid U.S. workers are expected to see higher wages in 2018.

One-time cash bonuses of $1,000 or more were announced by many employers following the passage of the federal tax bill in December. Companies handing out bonus money include PNC Financial Services, Comerica, Citizens Financial Group, Comcast, Bank of America and Fifth Third Bank.

Fiat Chrysler Automobiles announced plans to hand out one-time $2,000 bonus checks to about 60,000 U.S. workers.

Car sales aren’t expected to tank in 2018, thanks to the overall strong jobs picture.

Atlanta-based Cox Automotive is projecting that 16.7 million new cars and light trucks will be sold in the U.S. in 2018. That’s down from 17.1 million vehicles sold last year. (Cox Automotive is a subsidiary of Cox Enterprises, the parent company of the AJC.)

Yet some consumers with less job security and weaker credit may feel more compelled to buy a used car.

“Credit is tightening at the same time interest rates are going up,” Jonathon Smoke, chief economist for Cox Automotive, said in a recent interview.

A subprime borrower — defined as someone with a credit score below 600 — taking out a new car loan was looking at an average rate of 15.91 percent in October 2016. But a year later, the average rate had climbed nearly a full percentage point to 16.84 percent, Smoke said.

On a five-year, $15,000 car loan, the monthly payment for the subprime borrower would be about $7 a month higher and around $371 a month at 16.84 percent.

Many subprime borrowers can no longer get car loans as credit tightens.

Overall, auto financing has remained strong, according to data from Experian. But the origination of new car loans for subprime borrowers hit a record low through the third quarter.

Many consumers often focus on the monthly payment and just take out a longer car loan when rates climb higher. But the length of loan terms — averaging around 69 months — has somewhat plateaued, so extending that loan longer to lower the monthly payment may not be an option as banks tighten credit, Cox Automotive experts said.

Low car loan rates still exist, even though the Federal Reserve raised short-term interest rates three times in 2017. Another three rate hikes are expected for 2018, Smoke said.

The average five-year new car loan rate is 4.49 percent now, compared with 4.35 percent one year ago, according to Bankrate.com. Some credit unions and banks are advertising rates at 1.75 percent. But the best car loan rates go to customers with the best credit scores.