Ford, GM Say Auto Sales Are Not Overheated -- So Don't Panic

Tickers in this article: F FIATY GM

Detroit (TheStreet) -- Ford on Friday discounted fears of an overheated auto market, saying the continuing rise in auto sales is being fuel by a need to replace aging vehicles -- and not by excessive incentives or credit.

"I wouldn't call it frothy at this point," said John Felice, Ford vice president for U.S. marketing, sales and service, on the automaker's monthly sales call. An analyst had asked whether Ford sees frothiness in the auto credit markets.

Felice said, "We have noted a gradual trend over the last three to four years to 72-month financing," extending the traditional 60-month term. He noted that "the low interest rate environment we're operating in [is] giving customers more choices." But he reiterated: "I wouldn't categorize it as frothy -- it's really good for consumers."

Read More: Auto Sales Stay Frothy in July -- But S&P Spots a Debt Problem

Shortly after noon, Ford shares traded down 25 cents to $16.77. GM  traded down 33 cents to $33.49.

Experts, including TheStreet's Doug Kass, have concluded that the auto market is becoming overheated.

"Growing evidence suggests that the automobile industry is about to pause/peak, just like the housing market did 12 to 18 months ago," Kass wrote in a column posted Thursday.

"The potential for climbing delinquencies on auto paper will likely result in banks beginning to withdraw somewhat from the previously aggressive lending policies that have fueled auto industry demand over the past five years," Kass said.

Edmunds.com said Friday that only about 23% of car buyers purchased with cash or outside financing this year, as opposed to dealer financing and leasing. The rate could be the lowest level ever -- down from about 35% just five years ago, Edmunds said.

Additionally, 13.5% of new car loans in July were financed at 0% APR, "the highest level we've seen since December 2010, when it was 15.4%," the firm said.

"You can't underestimate how important dealer financing has been to this automotive recovery," said Edmunds analyst Jessica Caldwell, in a prepared statement. "It's attractive enough when a dealer offers zero-percent APR, but now it's more common to see zero percent for as many as 72 months, which was virtually unheard of not too long ago."

U.S. auto sales continued to set a blistering pace in July, as Chrysler sales rose 20%. Ford said sales gained 10% and GM sales gained 9%. Chrysler had its best July since 2005, Ford had its best July since 2006 and GM had its best July since 2007.

Read More: July Auto Sales Continue Blistering Pace as Ford, GM, Chrysler Gain

Chrysler said it internally projects that the seasonally adjusted annual rate for U.S. light vehicle sales to be 16.8 million units, while GM projects the SAAR at 16.7 million.

The question is whether this is "frothy" or not.