Car Buying Stalls, Can Consumers Keep Spending?

Americans may stay frugal after buying up SUVs with extra-long loans

By Justin Lahart

Jeep and Dodge vehicles displayed for sale at a Fiat Chrysler Automobiles car dealership. Photo: Daniel Acker/Bloomberg News


Americans are buying fewer cars. Will they buy something else?

Pushing steel is getting harder. General Motors , Ford Motor and Fiat Chrysler Automobiles FCAU 4.14%▲ reported on Monday that their car, pickup and other light vehicle sales were down sharply in June from a year ago. Japan’s top sellers did better, but not enough to make up for Detroit’s woes. At a seasonally adjusted, annual rate, auto makers sold 16.4 million light vehicles last month, according to WardsAuto, capping off the weakest quarter for sales since 2014.

Weakening auto sales have often been a prelude to the economy contracting. They began trending lower before the 2007 recession started, and were associated with the recessions of the 1970s and 1980s. The situation probably isn’t so dire now, but unless consumers shift the money they’ve been using to purchase cars to other areas, overall spending could weaken.

One common factor in those past downturns was higher gasoline prices, which not only prompted people to forgo car purchases—particular, lower mileage, made-in-America ones—but led them to cut back spending on other areas. With gasoline prices a bit lower than they were a year ago, that isn’t a concern at the moment. With unemployment low and incomes rising, it isn’t as if consumers have lost their ability to spend.

The recent decline in car sales stems in part from a drop in deliveries to rental-car companies, tighter lending standards and higher prices. It is also comes after a low-rate induced uptick in sales pricey SUVs and trucks, and as young people show less interest in cars than previous generations.



So Americans ought to have more to spend elsewhere, which would be good news for retailers, restaurants and other consumer-facing businesses with struggling sales. One hurdle to that, however, is that many people are still on the hook for the car they’re driving. The length of a new-car loan reached a record 69.3 months last month, according to Edmunds.com, with average monthly payments rising above $500. The rising share of new cars that are leased leaves people with more monthly payments to meet, either because they need to lease another car every few years or because they need to borrow money to buy the one they are leasing.

The slip in auto sales is also reflective of the more frugal consumer behavior that emerged following the recession. If people are shying away from car purchases they don’t see as strictly necessary, they are probably shying away from other purchases as well.

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