Category: Business Growth

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What to Expect in 2020

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

As financial institutions and dealers close the books on 2019, it’s worth reflecting on a few data points that will prove useful in 2020. The Experian State of the Automotive Finance Q3 2019 Report reflected these key findings:

  • Delinquency trends remained stable at 2.25% for 30-day delinquencies and 0.75% for 60-day delinquencies
  • Banks and captives show increases in market share, while credit unions decline
  • Credit scores continue to increase for new financing with average credit score reaching 725
  • Used prime financing reach highest point since 2009
  • Total market remains stable with modest year-over-year change
  • Loan amounts set yet another record high
  • Longer term loans continue to dominate the market
  • Rates continue to increase across all risk segments

Couple these points with the increasing cost of new vehicles, a tight market for used vehicles and strong end-of-year sales numbers and you have a good outlook for the 2020 auto finance market. So, what’s a credit union or local bank to do to increase market share in a climate of rising vehicle prices, monthly payments and loan terms?

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Business Growth

Are You Ready for the Holidays?

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

Holiday season is here! Will consumers be spending? Recent PwC research says, “yes”. In fact, the PwC 2019 Holiday Outlook shows consumers are optimistic with 86 percent saying they will spend the same or more this year, than in 2018.

But, will this holiday sentiment extend to the automotive industry? According to J.D. Power, the fourth quarter hinges on consumer affordability, rate reductions and manufacturer incentives to clear 2019 inventories.

Prepare, Prepare, Prepare

Unfortunately, credit unions have their work cut out for them.  According to Experian’s latest State of the Automotive Finance Market report, credit unions lost market share in the retail automotive market in the second quarter of this year. Especially glaring was the fall to 26 percent market share for used vehicle financing, previously a stronghold in the sector.

While some pundits claimed the credit unions scaled back their auto originations due to overcapacity, others point to more aggressive efforts among traditional and non-traditional lenders entering the space. Banks increased their used-vehicle market share to 36.3 percent, up 1.7 percentage points from 2018. Non-traditional lenders, including digital providers, also saw an uptick thanks to more consumers purchasing their vehicles online.

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Business Growth

Buy The Champagne – But Keep It on Ice!

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

There have been several pieces of news this month which could prompt a little champagne and celebration. After struggling through a challenging first half of the year, the third quarter looks to be strong for anyone operating in the retail automotive space. U.S. light-vehicle sales rose 10% in August, the second straight month of higher volume, with positive sales across most brands.

Additionally, on September 19th, the Federal Reserve shaved 50 basis points off the short-term benchmark interest rate, including a quarter point reduction in the general interest rate. But, don’t pop the Champagne cork yet. While this signals good news for auto loan volume, Cox Automotive cautioned the industry not to be too excited, indicating that consumers with lower credit scores will not see any relief. Subprime has reached a 10-year high and the analyst firm sees lenders requiring a higher premium to cover their risk.

Potentially in response to this concern, the New York Federal Reserve reflected that lenders relaxed access to loans for customers whose credit scores were subprime and in the lowest category of prime during the second quarter of this year.

As a result, auto loan and lease originations combined totaled $155.6 billion for the quarter, up 2.9% year-over-year. Keeping a cautious eye on the market, the New York Fed analysts are monitoring an increase in auto delinquencies. In the second quarter of 2019, loans that were 90+ days delinquent rose year-over-year by 4.2%.

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