I've been seeing more buzz lately on the subject of auto loans: they are surging, more and more loans are of subprime quality, it could the next bubble to burst, etc. Here are a few charts which help put the issue in perspective:
Outstanding motor vehicle loans (loans that have been securitized plus loans that are held by lending institutions) now exceed $1 trillion, and they rose by 8.6% last year. But the latest spurt of growth is relatively mild compared to what we saw in the 1980s, when loans were expanding at strong, double-digit annual rates. Loans today are only 25% above their high of 10 years ago.
As a percent of disposable income, motor vehicle loans today are about as much as they were in the late 1980s, and substantially less than they were about 10 years ago. However, interest rates on new car loans today are in the neighborhood of 4%, whereas they were much higher in the past.
The chart above looks at the burden (i.e., monthly payments as a % of disposable income) of all consumer debt and financial obligations. This confirms that the burden of motor vehicle loans today is much less than it has been in the past. Consumers in general are in pretty good financial shape these days.
As this article points out, new subprime auto loans last year were only about $20 billion, and represented less than one fourth of all new car loans. Only 3.4% of auto loans are seriously delinquent, and lenders have developed surprisingly innovative ways of repossessing cars these days.
However you look at it, motor vehicle loans today are not an obvious problem, and are very unlikely a tail big enough to wag the U.S. economy dog, at least for the foreseeable future.