The end of 2023 is on the horizon and lending in the retail automotive market seems a bit topsy turvy. Let\u2019s consider a few data points:<\/p>\n\n\n\n
The car buying consumer is in the midst of these juxtapositions. More people are employed than before the pandemic, but the \u2018value\u2019 of their paycheck continues to be hit hard by inflation. Availability of new and used vehicles is improving, but the \u2018cost\u2019 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<\/a>, the average negative equity value of auto trade-ins was $5,445 in April 2023, up nearly 24 percent compared with the previous year.<\/p>\n\n\n\n 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.<\/strong><\/p>\n\n\n\n\n\n\n\n Supply chain issues during the pandemic forced many car buyers to purchase new or used vehicles at record high prices. As recently as December 2022, Cox reported the average transaction price for a new car peaked at $49,507, compared with $38,948 in December 2019. In April 2023, the average used-car listing price was nearly $27,000, an increase of 35 percent since 2019.<\/p>\n\n\n\n According to Experian\u2019s Q2 2023 State of Automotive Finance Market report, payments and loan amounts for new vehicles have increased year-over-year across all credit score segments. For used vehicles, interest rate increases and shorter terms continue to cause payments to rise. On top of higher loan amounts, car buyers who financed in the past year are now paying more in interest.<\/strong> In April 2023, average APRs were at 7 percent for new cars and 11.1 percent for used cars, according to Edmunds.<\/p>\n\n\n\n A big part of the reason for today\u2019s high interest rates is the overall trend of tightening credit standards to protect lender portfolios. According to Experian, overall loan balances climbed while delinquencies rose past pre-COVID levels during the second quarter.<\/strong> Of course, lenders are concerned and opening up their tried and true playbooks. But, is there another option to maintain loan volume without increasing risk beyond your acceptable threshold?<\/p>\n\n\n\n Consider a two-pronged approach<\/strong> to insulating your credit union or lending institution from risk while also positioning your auto loans for greater market share.<\/p>\n\n\n\n This starts with playing to your strengths. Part of the reason credit unions have thrived in the auto loan space is their focus on customer service<\/strong>. By fortifying relationships with dealers and customers, and being flexible in tailoring their loans to meet consumer needs, credit unions have flourished throughout economic ups and downs. That strong focus on customer service will set strong lending institutions apart in today\u2019s combustible market. As you enter the fourth quarter, make sure to ask<\/strong>:<\/p>\n\n\n\n <\/strong>The second step in the strategy is to make your auto loans more attractive for greater organic growth<\/strong>. This goes hand-in-glove with insulation as you cannot make your loans more attractive without good customer service.<\/p>\n\n\n\n Concentrate on providing tangible value to dealerships by helping dealership personnel present more qualified customers<\/strong> by ensuring they understand your standards, and by responding quickly and efficiently to all applications.<\/p>\n\n\n\n <\/strong>Differentiate yourself beyond terms and pricing<\/strong> with consumer protection products<\/a>, such as a vehicle return program<\/a>, a vehicle service contract<\/a>, or a limited powertrain protection plan<\/a>. Products like these boost your bottom line, your dealership\u2019s margins and protect the pocket-book of the loan applicant.<\/p>\n\n\n\n By focusing on customer service, flexibility, and value, it is possible to tailor your portfolio for maximum performance.<\/strong> With more than 46 years serving as an industry innovator of consumer and vehicle protection programs, EFG Companies<\/a> is committed to the continuous development of innovative products and services paired with go-to-market strategies and execution support across a multitude of channels.<\/p>\n\n\n\nStep 1: Customer Service<\/strong><\/h3>\n\n\n\n
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Step 2: Attraction<\/strong><\/h3>\n\n\n\n