Car Dealership Guy’s Post

Securitized auto loan recoveries aren’t likely to improve in the coming months as used-vehicle values decline and repossession costs rise. At the same time, credit performance continues to weaken across prime and nonprime auto loan pools. Recoveries landed at 45.7% for securitized prime loans, down 4.5 percentage points sequentially and 2.5 percentage points year over year. State of the Automotive Finance Market in Q4 2023 (Experian) - Leasing remains low but is starting to increase as more cash comes into the market. - Subprime automotive financing reaches record lows. - Payments are increasing while loan amounts remain steady for new vehicles and decrease for used vehicles. - Loan-to-Value (LTV) ratios continue to decrease year-over-year for both new and used lending. - Overall balances are on the rise while delinquencies also continue to increase. These trends suggest a changing automotive finance market in Q4 2023, with notable shifts in leasing patterns, subprime financing, payment dynamics, and loan-to-value ratios.

🚗 Why Auto Lenders Have Tightened Their Standards Auto lenders are originating meaningfully fewer loans now than pre-COVID-19. To be specific, lenders generated 23% fewer loans in Q1 of this year vs. Q3 of 2019. Why? Loan interest rates are way up compared to then, as are vehicle costs. People also have agreed to longer loan terms on average. Lenders also have become stricter. And negative equity is a big reason why.

Auto lending. Longer terms, such as 84 month lending, have become more common. So too have higher rates. We've certainly seen delinquencies on the rise in the last 6 months. Negative equity in a vehicle is back. Could lead to further weakening of performance in 2024. "Prices for new vehicles are high. Interest rate hikes have made loans more expensive. And many car owners now owe more on their loans than their vehicle is worth. This situation — commonly called being "underwater" or having "negative equity" — occurs when the price of a car falls faster than the owner can pay down the loan for it" "In November, people with negative equity were underwater by an average of $6,054, the most since April 2020 and well above pre-pandemic averages" "The last time the average negative equity was this high — $6,078 in April 2020 — Americans were rushing to trade in their vehicles after the Fed cut rates in response to the start of the pandemic. At the time, car owners with high payments recognized they could either refinance or switch out their car for another at a lower rate, even if that meant rolling over some negative equity. In 2019, the average negative equity hovered around $5,300" "The average rate for a loan on a new car is 7.4% and 11.6% for a used vehicle. Plus, in recent years, dealerships and lenders have started offering six- and seven-year loan terms, as well as lower down payments, which make it harder for owners to build equity in their vehicle." "For instance, say someone borrowed $20,000 on their car and can't keep up with the payments. They might try to trade in the car, only to find that the vehicle is worth only $18,000 now, and they still owe $19,000 on the loan. That means they have to come up with the $1,000 to repay their lender." #banks #creditunions #autos #credit #lending #rates https://lnkd.in/eKj8hPJ6

🚩The irresponsible banks are showing cracks, while the puzzle of low unemployment and rising delinquency of prime and subprime borrowers is of serious concern (Thanks to the various "forbearance" programs). 🚩 The transition of prime and subprime borrowers into the delinquency category is not just a trend, but a rapid and concerning phase. Even more worrying, borrowers with top credit scores have been falling behind on their auto debt at an accelerated pace over the years. 🚩 The Bank’s dealerships are at greater risk of defaulting floor plan loans due to low sales. The combination of high prices and credit score migration allowed many borrowers to access credit (which they otherwise might not have been able to) to purchase vehicles whose prices had risen significantly over a relatively short period of time. https://lnkd.in/eCujrTAZ

Is the car market on the verge of collapse? Americans held $20 billion in auto loan debt in Q2 2023 and 6.1% of subprime borrowers were at least 60 days past due on their auto loans as of September 2023, the highest since 1994... Couple that with average new vehicle price around $48,000 for the past year, resulting in monthly payments of over $1,000. Additionally, new vehicle loan rates rose to 10.48% in September 2023, up from 9.51% in January. Used vehicle rates were 11.4%. So most people are holding car debt, furthermore no one can buy a car because rates and new car prices are terrible. All of this points to huge trouble for car sales in the future. Dealerships are going to be in for a rough road ahead. Sound off in the comments what you think will happen!

🚩The irresponsible banks are showing cracks, while the puzzle of low unemployment and rising delinquency of prime and subprime borrowers is of serious concern (Thanks to the various "forbearance" programs). 🚩 The transition of prime and subprime borrowers into the delinquency category is not just a trend, but a rapid and concerning phase. Even more worrying, borrowers with top credit scores have been falling behind on their auto debt at an accelerated pace over the years. 🚩 The Bank’s dealerships are at greater risk of defaulting floor plan loans due to low sales. The combination of high prices and credit score migration allowed many borrowers to access credit (which they otherwise might not have been able to) to purchase vehicles whose prices had risen significantly over a relatively short period of time. https://lnkd.in/eCujrTAZ

As we anxiously anticipate the Federal Reserve cutting interest rates, let’s review the lending opportunity that is starting to develop. This opportunity is not only related to cuts in interest rates but also includes the growing number of opportunities nationwide. When we talk about opportunities, we’re referring to the number of auto loans that exist nationwide that qualify to be refinanced. Let’s take a look at the numbers: ·      February 2022 – 3,056,472 Loans ·      December 2022 – 1,424,336 Loans ·      May 2024 – 2,034,452 Loans As you can see, the pandemic significantly reduced the number of available loans nationwide during 2022 due to lack of vehicle inventory and rising interest rates. Now that dealer inventory has been robust for the past 18 months, we are starting to see the numbers headed back to historic levels. The anticipated cuts in interest rates will certainly accelerate that growth. Now is the time to consider installing an auto recapture program to take advantage of this opportunity. Regardless of whether an indirect or direct program fits your institution, we have the solution. One thought on direct versus indirect auto recapture programs. We have significant data showing a direct program outperforms when tracking delinquencies and charge-offs. With delinquencies growing across the board due to past and current inflation, this is a critical point in making a decision on which approach is best. We have numerous clients that have utilized our direct approach simply based on this fact. Below you will see what one of our clients states about executing The Stellar Financial Group’s “Direct” auto loan recapture program.  #AutoLoans, #Chargeoffs, #Delinquencies

Demand for car loans drops: Level of inquiries falls by one-fifth from a year ago but arrears on vehicle finance improves. #centrix #credit #indicator #report #vehicle #loans #arrears #demand #consumers #finance #carnews

🚩The irresponsible banks are showing cracks, while the puzzle of low unemployment and rising delinquency of prime and subprime borrowers is of serious concern (Thanks to the various "forbearance" programs). 🚩 The transition of prime and subprime borrowers into the delinquency category is not just a trend, but a rapid and concerning phase. Even more worrying, borrowers with top credit scores have been falling behind on their auto debt at an accelerated pace over the years. 🚩 The Bank’s dealerships are at greater risk of defaulting floor plan loans due to low sales. The combination of high prices and credit score migration allowed many borrowers to access credit (which they otherwise might not have been able to) to purchase vehicles whose prices had risen significantly over a relatively short period of time. https://lnkd.in/eS8Tw3p6

Understanding Car Loan Interest Rates: Securing the Best Rate for Your Vehicle Finance https://bit.ly/3TbdLOM