Debt mountain behind surge in car sales

Around 80% of new cars in the UK are bought on finance and the US figure is not far behind at two-thirds of its market. We believe the car industry has become similar to the housing sector before the financial crisis and is an example of the financial market driving the underlying economy. Institutions are desperate to earn the fee of these packaged loan products, which drives the supply. Meanwhile, the perspective of whether it makes sense for a certain consumer to have a loan in the first place is skewed.

When you borrow money you are doing so to buy something you cannot afford. In effect you are bringing forward demand from the future. Ultimately the debt burden will affect growth and productivity. For this reason we prefer to invest in companies focused upon robust business models with structural drivers rather than those dependant on artificially supported levels of demand or cyclical recovery.

Nick Clay – Newton, a BNY Mellon company

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