Auto Bubble: Federal Reserve Policy Shifts Spending Patterns

Fiat Chrysler is laying off workers at its assembly plant right near my house.

Fiat Chrysler says it will lay off about 1,300 workers at an assembly plant in Sterling Heights this summer for an indefinite time due to slow sales of midsize cars made at the factory.

…”While today’s announcement of a shift reduction at Sterling Heights Assembly is unfortunate, it is not unexpected. FCA is not the only company experiencing a slow market for small cars. On a bright note, there is a strong demand for larger-sized vehicles. The company has been planning to increase its capacity to build more trucks and SUVs. I believe that in the long term this move will be a positive one for our members and the company,” said Jewell in a statement.

The auto bubble, with its easy credit and super-low (or no) interest rates guiding the way, has redirected consumers from more affordable small and mid-size cars to the $30k – $40k+ SUVs and pickups that are financed at or near 0% on a 5 – 7 year loan period. In mid-2015, Kelley Blue Book reported that the average new car transaction price had reached $34k. I personally know of individuals who have financed cars that cost at or near 100% of their annual (gross) salary. This is not uncommon, and it is unsustainable.