Banks may be behind the mysterious drop-off in car sales

“If the next few months reveals a further decline in auto sales, we need to pay attention to that because it will feed back to the economy directly. The bigger risk is that it’s a sign of broad-based weakness of the consumer. At this point, we can’t make that case,” said Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch.

Auto loan delinquencies have been on the rise in all categories, and lenders, after an extended period of low rates and easy money, have been tightening loan standards. The trend picked up in the second half of last year, but accelerated in the first quarter of this year.

Auto delinquencies, percent of balance of auto loans from the NY Fed’s credit panel.

Source: Bank of America Merrill Lynch

Some of the focus has been on subprime loans, but Meyer said all loan types have seen delinquencies. “It’s possible the fact the delinquencies are picking up, it’s leading to a tightening of lending standards, which is feeding back to the demand,” she said, noting that the Federal Reserve’s senior loan officer survey has been highlighting the trend.

She said, for now, the tightening appears to be a normal reaction, not a more dire concern.

Net percent of banks tightening standards for auto loans. 11.7 percent Q1, 2017

Source: Bank of America Merrill Lynch

March vehicle sales fell to an annualized pace of just 16.5 million, below expectations of 17.3 million and the weakest…

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