Auto Bubble

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    Professor Herbener,

    I have a quick question for you regarding the giant automobile bubble we currently have. Obviously, it is a result of credit expansion/artificially low interest rates. But would you say that it is fueled mainly by:

    A.) Car companies taking advantage of the low interest rates — investing too much, creating too much, and giving too many “sweet deals” to their customers;

    B.) Banks and investment firms, who are more than happy to invest in the subprime auto market and provide cheap loans; or

    C.) A mixture of both A and B?

    Thanks so much for your thoughts.


    Auto loan statistics are compiled by Equifax. Here’s a piece on Equifax’s October 2014 report.

    It shows that in the fall of 2014 financial institutions had 31.4 million auto loans worth $453 billion and auto companies had 34.1 million auto loans worth $471.2 billion.

    Here’s an Equifax report on subprime auto loans.

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