The time-honored American tradition of taking out a loan to buy a vehicle is coming back fast, especially in the Upper Midwest.
An analysis released this week by researchers at the Federal Reserve Bank of Minneapolis shows that auto-loan debt rose in 2012 to 98 percent of prerecession levels in the Ninth District, which includes Minnesota, the Dakotas, Montana, northern Wisconsin and the Upper Peninsula of Michigan.
That’s a faster pace of growth than nationally, where auto loan debt is about 88 percent of the prerecession high.
Brian Sherrick, president of Postal Credit Union in Woodbury, said borrowers pulled back in 2009, dropping his credit union’s auto loan portfolio by 14 percent. But Postal’s book of auto loans has been growing steadily since, gaining 11 percent in both 2011 and 2012.
He expects the late arrival of spring to bring a new wave of loans over the next 45 days.
“The early spring last year kicked it in,” Sherrick said. “That’s just starting now, based on what we’re hearing from the dealerships.”
While more people are leasing vehicles, and the share of folks paying cash for an automobile is growing, auto loan demand looks strong because so many vehicles on the road are getting older and interest rates are low.
“That’s good for the consumer, because they can get out and afford a little more car,” Sherrick said.
Car and light-truck sales in the United States plummeted from 16.1 million vehicles in 2007 to about 10.4 million in 2009, ultimately forcing the bailouts of General Motors and Chrysler. But auto buyers have been returning, and sales have climbed. U.S. auto sales are on pace this spring to hit 15.5 million this year.
That means dealerships will likely sell 5 million more vehicles in 2013 than they did five years ago.
Banks and credit unions are making most of these loans in the Ninth District.
According to the Fed, loan balances in northern Wisconsin have not gained much ground since the recession, but in North Dakota, loan balances are 40 percent above prerecession levels.
So-called super-prime borrowers — people with great credit — are responsible for a large percentage of vehicle debt, the Fed said.