ATLANTA -

Manheim chief economist Tom Webb regularly tries to take questions connected to current events when he closes his monthly Auto Industry Brief. The August edition contained questions that likely came from a busy F&I manager.

The questioner arrived at the query after reading that household debt levels shrank in the second quarter.

“That’s not the sense I get from reviewing our customer credit apps, nor is it consistent with the large amount of new paper we are sending to lenders every month,” the individual told Webb. “What gives?”

Webb began his response by acknowledging total outstanding debt (mortgages, home equity loans, student loans, auto loans and credit cards) did, in fact, decline by $18 billion in the second quarter, according to Federal Reserve information.

But it was a tale of two cities — mortgage lending fell to a 14-year low, while auto lending hit an eight-year high,” Webb said.

In light of those figures, Webb tried to give more perspective beyond the broad figures.

“All in all, the state of household finances is solid. Lower debt levels, low interest rates and modest income growth have pushed debt servicing costs down to levels not seen in over 30 years,” Webb said.

“Nevertheless, there is still a very broad swath of the country that lives paycheck to paycheck and where debt servicing costs eat up the majority of income,” he continued. “Those stories are always lost in the aggregate averages.”

With this F&I manager evidently busy with applications, the situation reinforced Webb’s position about how the availability of vehicle financing is one of the facts supporting the sustained rebound of auto sales — both new and used.

“There is no way to overstate the important role that favorable retail financing conditions have played in supporting used-vehicle sales and residual values throughout this recovery,” Webb said. “And, unlike times in the past when aggressive new vehicle financing hurt used-vehicle residuals by switching customers from a used purchase to a new one, this time the financing deals are being used to support higher average new-vehicle transaction prices.

“In addition, today, the great financing deals are also available for used vehicle purchasers,” he added.

After taking his turn refuting this summer’s much-discussed New York Times series that attempted to convey a subprime auto finance bubble inflating, Webb did describe what he called the “fantasy” portion of vehicle financing. He pointed out current conditions of financing availability likely won’t continue into perpetuity.

Webb insisted it is fantasy “to assume that retail credit conditions will continue to get better, loans will get longer, and that there will be no downside.

“When rates rise — and they will — the market’s all-consuming ‘search for yield’ will abate,” he continued. “And, when that happens, lenders will no longer be awash with funds and, thus, will become more restrained. It is also fantasy to assume that the lengthening of loans that has already occurred is not a negative.

“In addition to increasing the severity of loss on the few repos that do occur, extended terms can also negatively impact customer satisfaction when owners find it difficult to trade out of their ride when they want,” Webb went on to say.