Business Growth Economy

Mid-Year Economics Impact on Auto Lending

2023 has provided some surprises so far for retail auto lending. While many predicted we would be in the midst of a recession, other factors have proven the economy to be more resilient for the first half of the year. For credit unions, there are some definite upsides, but a prudent approach keeps a close eye on the data for the remainder of the year.

Interest rates remain a concern

While the Federal Reserve paused its corrective rate hikes in June, rising interest rates continue to keep some consumers out of the market. According to Experian’s State of the Automotive Finance Market Report: Q1 2023, the average interest rate for a new vehicle increased to 6.58 percent, from 4.10 percent in 2022. The average interest rate for a used vehicle jumped from 8.67 percent in the first quarter of 2022 to 11.17 percent in Q1 2023. While Chairman Powell has signaled that the Federal Reserve will continue to use rate hikes to address inflation, it remains to be seen whether auto lending rates will continue their upward trajectory. If they do, then consumers may keep their vehicles longer or seek other options to meet their transportation needs.

Inflation eases, consumer confidence rises

According to U.S. Labor Department, the annual inflation rate declined from 6.4 percent in January to 4.0 percent in May. The U.S. Consumer Confidence Index also improved substantially in June, soaring to 109.7, its highest level since January 2022. It would appear that the economy and consumer sentiments are on the upswing – unless you are in the market for a used vehicle. While the Consumer Price Index for All Urban Consumers (CPI-U) across all retail markets rose by only 0.1 percent in May, when you break out the CPI for just used cars, it tells a different story, marking a steep increase of 4.4 percent.

Business Growth Economy

Diminishing the Drumbeat of Lost Auto Loan Volume

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

You’re sitting in a dark movie theater, watching a suspenseful film. Tensions build as an ominous drumbeat signals danger. Is the danger real or a figment of your imagination?

The credit union industry might be hearing a drumbeat, but is it real?

After steadily gaining auto finance share over the past eight years, credit unions lost market share in the first quarter, according to Experian’s latest State of the Automotive Finance Market Report. Market share for credit unions dipped 1.4 percentage points to 19.9%, down from 21.3% in the first quarter of 2018.

The drop was largely driven by declines in used-car financing, where market share fell to 26% from 28% in first-quarter 2018. Even in new-vehicle financing, credit unions’ share dipped to 12.4% from 13.5% the previous year.