Consumer confidence took a hit in February. According to The Conference Board, the non-partisan nonprofit which administers the monthly Consumer Confidence Survey, consumer confidence registered the largest monthly decline since August 2021. Reflecting the third consecutive month-on-month decline, consumer views of current labor market conditions weakened, consumers are pessimistic about future business conditions, and less optimistic about future income. Pessimism about future employment prospects worsened and reached a ten-month high. The University of Michigan monthly Consumer Sentiment Index reflected that consumers expect prices for goods will continue to rise and inflation will continue to hamper big-ticket purchases.
For retail automotive lending, these concerns about inflation can be a self-fulfilling prophecy. Although reflecting lagging indicators, the Experian Q4 2024 Chart Book data provides a glimpse at some areas of concern. Lending standards tightened by 2 percent for auto loans and consumers reported the highest level of loan rejections in 10 years. Auto loan originations were stable, but loan delinquencies continue to rise.
Delinquencies and charge-offs are expected to remain a challenge, particularly with younger credit union members struggling under the weight of high student loan debt and rising rent costs. Car insurance premiums, which have surged by 30%, are another strain, leading some members to reduce coverage, increasing the likelihood of repossessed vehicles being in poor condition. This trend could lead to more charge-offs for credit unions.
How consumers are ‘feeling’ has a tremendous impact on their willingness to take on debt. Now is the time for credit unions to help mitigate these issues by doing what you do best – focusing on areas that deliver more value and offering support to members dealing with financial strain.
Your credit union can be the best source of consumer confidence! Lean into your strong member relationships by being a source of knowledge and education. Before the customer visits the dealership, work with them on securing the optimal pre-approved loan product that puts them in the best vehicle without sacrificing financial stability. Offer personalized solutions to members such as WALKAWAY to help them adjust to the changing job market and economic conditions.
More broadly, providing financial counseling services can help members manage their debt and make informed decisions. Support younger members who are particularly vulnerable to financial stress, by offering tools to manage student debt and rising living costs and gain a member for life.
While many of these data points and overall consumer confidence are out of your control, you can impact your member’s confidence in your ability to be their trusted ally. At EFG Companies, we’re more than an F&I provider, we’re your trusted business partner in auto lending. Together, let’s make more in 2025.
Want to know more about EFG’s products or how you can counter declining consumer confidence at your credit union. Contact me at [email protected] or message me on LinkedIn at Brien Joyce.