Mark Rappaport
President
Simplicity Division
EFG Companies
The automotive finance industry has been riding a five year high with an average 8.30 percent year-over-year increase in unit sales from 2011 to 2015, according to data from Wards Auto. With the rapid pace of automotive industry growth lending requirements loosened, longer term loans became the norm and subprime lending skyrocketed.
With key market indications shifting, everyone is watching the market carefully, poised to tighten lending requirements. According to Experian, average new vehicle loan terms increased to 67 months in 2015, while used vehicle loan terms increased to 63 months. This has resulted in a significant growth of negative equity on car notes.
According to the NADA Used Car Guide (NADA UCG), the percent of originations, including trades that carried negative equity, increased year-over-year by 2 percent. In addition, NADA UCG also stated that based on data from J.D. Power’s PIN Network, of the cars that had an equity position in 2015 and 2016, the trade-in value decreased by 50 percent. In Q1 of 2015, the average trade-in value for a car was $1,000. By Q1 of 2016, the average trade-in value had decreased to $500.