The end of 2023 is on the horizon and lending in the retail automotive market seems a bit topsy turvy. Let’s consider a few data points:
- August jobs report reflected an additional 187,000 jobs – but the unemployment rate jumped unexpectedly.
- The Federal Reserve has paused interest rate increases for the time being – but inflation rose 0.6 percent in August to 3.7 percent, its biggest monthly gain of 2023.
- While it seems the economy is cooling, the average interest rate on a new car is 14.09 percent and 14.34 percent for a used car.
The car buying consumer is in the midst of these juxtapositions. More people are employed than before the pandemic, but the ‘value’ of their paycheck continues to be hit hard by inflation. Availability of new and used vehicles is improving, but the ‘cost’ of a loan feels exorbitant, pricing many people out of the market. And, if the buyer has a vehicle to trade with a balance owed, the impact of negative equity may come as a surprise. According to Edmunds, the average negative equity value of auto trade-ins was $5,445 in April 2023, up nearly 24 percent compared with the previous year.
As a lender, what options are available to your team to continue to grow a strong lending portfolio while keeping customers out of a potential delinquency position? Here are some maneuvers that require a sharp pencil but should result in a win-win for both you and your customer.