Automobile Protection Association

The Automobile Protection Association (APA) announced its 2015 new car ratings today, available in English on the Association’s website and published jointly with Protégez-Vous, Quebec’s French language consumer magazine.

The APA says that consumers are living large, as the industry comes off two years of record sales. Truck sales have taken off everywhere, and six out of 10 new vehicles sold last year were a Sport Utility Vehicle (SUV) or pickup truck. Even in Quebec, the province with the most loyal small-car following, combined sales of all classes of SUVs edged out compact cars. According to the APA, even the most frugal SUVs use about 20 percent more fuel than a compact car, but that doesn’t seem to be a problem with many buyers since fuel prices dropped. APA Director George Iny says consumers are looking for more features on their new vehicles. “All-wheel-drive, Bluetooth phone connectivity, heated seats, and a backup camera are features a new 2015 model is likely to have that your older car does not,” he says.

The APA says that the luxury market is expanding quickly, with new compact luxury sedans and SUVs from Mercedes, Audi, BMW and other brands. Iny says many customers for these vehicles never bought a luxury car before, “In fact they never even thought a European vehicle was within reach, but low interest rates and low monthly lease payments are pulling them in like never before.” The APA says that over the long-term, ownership of a European or American luxury model will undoubtedly have higher maintenance and repair costs than compact and midsize models cars.

Consumer debt increasing

According to the APA, interest rates as low as 0% for seven years have, essentially melted away consumer resistance to long auto loans. According to the APA, 84 months is now the standard length for auto loans from several manufacturers, and some buyers are stretching payments to 96 months. APA’s Iny says consumers can take on a lot of debt when they “upgrade” to a more expensive SUV or luxury vehicle without feeling the pain right away, because the monthly payment on an extra-long car loan is comparable to what they paid in the past for a shorter loan.

However, George Iny says problems can arise when a consumer wants to trade out of a vehicle early. “With extra-long car loans, the consumer will often owe more than the value of the vehicle. This “negative equity” is then hidden in the amount to finance on the consumer’s next vehicle,” he said.

According to the APA, negative equity is not just bad for the consumer – it’s also risky for dealers. Extra-long financing worsens the cyclical behaviour of car sales, making the highs higher, and eventually the lows lower.

According to the APA, the cheapest solution is usually to keep your current vehicle well after the end of car payments. For consumers who want to replace their vehicles often, the APA recommends new car leasing for a term between 36 and 60 months. If you plan to finance for 84 months or longer, the APA recommends you stick with a vehicle with proven reliability and be realistic about how long you will hold on to it. APA’s Iny warns that getting out of a $0 down payment, 84 month loan early likely will result in money owing, which the dealer will add to the financing of your next vehicle.

The APA says that when it receives reports from consumers who are over their heads after refinancing an auto loan, the picture isn’t pretty. Consumers frequently relied on verbal representations by the seller that suggested securing the balance of their old loan on a new vehicle would be painless. The hangover starts when they examine the paperwork, and realise their loan obligation has ballooned beyond all reason.