Category: Economy

Categories
Economy F&I

Get Ready for a Fire Sale

Brien Joyce, blog author

I drove down ‘dealership row’ last weekend and was struck by the number of massive SALE banners and vehicle promotions. It’s that time of year when dealers are trying to move 2024 inventory to make room for the 2025 models. Fortunately, this year, they have some inventory to move – but face some stiff challenges thanks to high vehicle prices, stubborn interest rates, and hesitant consumers.

Industry forecasters expect third-quarter U.S. vehicle sales to be roughly flat compared to a year earlier. According to Edmunds’s estimate, automakers sold about 3.9 million new vehicles in the U.S. in the July-September period, 2.3% less than a year ago. Cox also forecasts a 2.1% decline, while J.D. Power predicts flat sales. The sluggish results would put automakers on pace to finish the year with U.S. vehicle sales of around 15.7 million—a slight increase from last year, when supply-chain snags were still hampering vehicle output but still off historic highs.

Continue reading “Get Ready for a Fire Sale”
Categories
Business Growth Economy

Accelerate Auto Loan Volume This Tax Season

Brien Joyce

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.

Continue reading “Accelerate Auto Loan Volume This Tax Season”
Categories
Business Growth Economy

The Devil In Delinquencies

Experian’s Q3 State of the Automotive Finance Market Report revealed that 60-day auto loan delinquencies rose past pre-COVID levels, prompting concern for the auto lending industry. According to Fitch ratings, a record number of subprime borrowers are behind on auto loan payments by more than 60 days, hitting 6.11% in September. Vehicle repossession rates are also on the rise, leaving many without transportation. High delinquency and default rates mean lenders could face significant losses as they have more difficulty recouping funds.  

Another interesting data point is the scale of student loan debt compared to auto loan debt. In the first quarter of 2023, more than 43 million people in the U.S. were holding federal and private student loan debt, totaling more than $1.77 trillion overall. However, in September, the Wall Street Journal reported that the total amount of auto loan debt had surpassed student loan debt. At the end of Q2 2023, auto loan debt reached $1.58 trillion compared to $1.57 trillion in student loan debt.

Much of the loan debt can be attributed to the rise in car payments. According to Edmunds, the average new car payment in Q3 2023 reached $736 per month – a 4.6% increase over a year earlier.  Experian reports that three times as many people paid more than $1,000 monthly toward an auto loan. Think about how this trend line correlates with the rise in delinquencies.

Continue reading “The Devil In Delinquencies”