Tag: EFG Companies

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Business Growth Economy

Perspective on the Auto Sales Plateau

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

It’s official. Auto sales have plateaued. Dealerships across the U.S. are reporting low sales numbers in comparison to last year. Manufacturers have increased incentives, but no one’s taking the bait. Looking at these headlines, it all looks like doom and gloom. But, let’s take a step back for a second.

According to Automotive News, the auto industry sold 17.5 million vehicles last year, representing a seventh straight year of growth. When put in that perspective, a plateau at 17.5 million vehicles doesn’t seem too bad.

Yes, vehicle sales aren’t hitting manufacturer projections, but seriously, how long did they really think sustained growth was going to continue? We’ve been in one of the longest economic expansions in U.S. history; the economy was bound to slow down at one point.

With that perspective in mind, economic indicators continue to be strong.  National unemployment has hit its lowest level since May 2007. We’ve seen strong jobs gains in recent months. According to CNN, wages rose 2.5 percent in the past 12 months, and the median price of a home has risen to $236,400. Lastly, consumers are still taking on debt. According to the Federal Reserve, consumer credit rose 4.8% annually in February.

Clearly, there is still plenty of business available. This time of relative calm, with no abrupt economic changes, is the perfect time for auto lenders to catch a breath, regroup and re-address their go-forward plans with regards to loan volume.

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Uncategorized

Managing Rising Consumer Debt

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

The data says it all. According to Euromonitor and JATO, between 2009 and 2016:

  • U.S. consumer spending on vehicles grew by 36 percent
  • The outstanding balance of consumer auto loans increased by 36 percent
  • Disposable income only grew 15 percent
  • The outstanding balance of consumer loans as a whole decreased by 7 percent
  • The average auto debt per car in circulation rose by 44 percent

Everyone knows that since 2009, auto manufacturers and lenders aggressively pursued unit sales and loan volume. Manufacturers have hit a peak when it comes to providing deep incentives, while lenders loosened credit standards, increased terms, and dove into the deep-subprime space.

Morgan Stanley recently reported that the percentage of deep subprime loans rose from 5.1 percent in 2010 to 32.5 percent in 2017.

Now dealers, manufacturers, and lenders are beginning to see what the other side of this rapid expansion looks like. Sales are plateauing regardless of dealer or manufacturer incentives. Defaults and delinquencies are up, and loan originations are on the decline.

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Economy

Help Dealers Help You

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

The first quarter has come and gone, and lenders and dealers alike are still seeing red flags in retail auto, and subsequently, the auto finance market. According to J.D. Power:

We have the wrong supply for current demand.

Vehicle production is not aligned with consumer demand. Manufacturers produced more sedans when buyers were in the market for crossover utility vehicles (CUVs). Because of this, half of all auto brands, and six out of 10 vehicle models lost sales volume in Q1.

Overall supply is much greater than demand.

Dealer inventory closed out Q1 at 4.1 million units, representing an increase of approximately 300,000 units from Q1 of 2016, and a half-million unit increase from 2015. What causes concern here is that analysts depict today’s consumer demand as identical to that of 2015, meaning supply is much greater than demand.

Incentive programs aren’t aligned with demand.

Industry-wide, the average manufacturer incentive for Q1 was $3,900. This comes after closing out 2016 with incentives as high as $4,000 per vehicle. Comparatively, these incentives are even higher than those in 2008/2009, when dealers needed anything possible to close just one sale.

In the midst of all this, loan terms continue to get longer.

Loans terms continue to lengthen, with 72 month terms accounting for 33.9 percent of new-vehicle sales. As you well know, this doesn’t bode well for defaults and delinquencies down the line.

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