2024 has begun in an interesting fashion. Americans seem to be generally skeptical about the economy and their own financial well-being even though data reflects that the economy is actually quite robust. Consumers are spending briskly, which typically suggests optimism, not retrenchment. Inflation has tempered. Unemployment has been below 4% for 24 straight months, the longest such stretch since the 1960s. Despite these gains, many feel their long-term financial security is vulnerable to wide-ranging social and political threats, especially during this election year.
Some metrics reflect that consumer sentiment about the economy may be starting to improve. According to the University of Michigan monthly review, consumer sentiment recently posted the biggest two-month increase since 1991. Yet it remains about 20% lower than during the robust economy of early 2020, just before the COVID-19 pandemic started.
As lenders in the automotive market, this time of year is usually quite lucrative as buyers are in the market looking for deals. However, high interest rates and vehicle prices have kept many consumers on the sidelines. The overall average auto loan interest rate was 7.03% for new cars and 11.35% for used cars in 2023’s third quarter, according to Experian. The average transaction price for a new vehicle in December was $48,759, according to Kelley Blue Book.
A recent survey of credit union professionals from Credit Union Leasing of America (CULA) revealed that 59% of credit unions are viewing 2024 with some optimism, with 39% expecting growth in their auto finance portfolios. Nearly all respondents (95%) felt that credit union members benefit from lender relationships with auto dealers, with over 70% saying they plan to deepen/increase those relationships in 2024.
There is a glimmer of hope on the interest rate front as a MarketWatch study foresees interest rates finally coming down, as soon as the second quarter. At the same time, manufacturer incentives have returned, pricing new cars below current used-car levels, and pressuring the used car market to right-size. Lower APRs and overall lower purchase prices should prompt buyers who’ve been on the sidelines to consider making a purchase just as tax return cash hits the bank account.
More tax dollars in consumer pockets
Americans can expect to see larger standard deduction amounts when filing their 2023 tax forms. These higher deduction amounts will result in lower taxes and larger refunds – especially if employees did not adjust their withholdings.
Along with higher standard deduction amounts, the IRS has adjusted the income tax brackets from the 2022 tax year. The income tax bracket changes mean that, as with higher standard deductions, taxpayers can expect to see a slightly smaller tax bill. For example, a single taxpayer who has taxable income of $44,000 for 2023 will be taxed at a marginal tax rate of 12%. If the taxpayer had received the same amount in 2022, they would have been taxed at a top rate of 22%. This is a significant difference and can mean more cash in the consumer’s pocket.
While optimism is high, cash is flush and credit unions win when competing on rate, today’s buyer is vastly different than buyers in 2019 and early 2020. Today’s buyer will be shopping for the best deal available, and are looking at the total value of their purchase beyond the price of the vehicle.
As new and used vehicle inventories stabilize, buyers have more options to purchase the exact vehicle they want – at the price they want. Today’s buyer is well prepared before they get serious about purchasing a vehicle. They understand their financial situation, the amount they want to put down towards a vehicle, and the payments they can afford. This is tempered by their overall negative sentiment about the economy as a whole and worry over their financial stability.
Savvy auto lenders, working closely with their dealer partners, can give those buyers more confidence to make the right purchase.
The Value Add
Structuring your loans with consumer protection products that reflect current economic conditions and consumer needs not only make it easier for finance managers to sell, but also:
- attract and retain dealership partners;
- increase year-over-year auto loan volume and financial control;
- expand per month income;
- reduce default rates; and,
- decrease repossessions and collection costs.
Providing tangible value to both dealers and vehicle shoppers puts you miles ahead of the competition. How do you do this? One of the best ways is with complimentary consumer protection products, such as a limited powertrain warranty or vehicle return protection.
Complimentary products such as these set the stage for upsell opportunity, making it possible to increase your margins as well as the dealership’s PRU. By providing a valuable service to vehicle shoppers, it’s easier to familiarize them with the benefits of the product and position the upsell as just another way to extend those benefits.
By adding the right consumer protection products with the right financing options, you can set your credit union apart from other options and ink that deal.
Our proven team of EFG experts are here to help. We bring years of experience to your team. At EFG Companies, we’re more than an F&I provider, we’re your business partner. Contact us today to learn more about how our team can help you achieve your winning strategy.