Loan terms are getting shorter, leases are getting back up and market share is heading towards a general breakdown as interest rates slow to rise.
The share of new vehicle loans in the first quarter was 12.5%, up from 9.5% a year earlier, according to loan terms of up to 48 months. experian, The increase in shorter terms and cash payments was mainly driven by prime consumers who wanted to save money despite higher interest rates.
Leasing is also growing in popularity as a way for consumers to lower monthly payments. In Q1, 18.23% new vehicles were leased, as against 21.67% during the same period a year ago. Still, leasing is unlikely to reach pre-pandemic levels in the next few years.
With the return of incentives amid increased supply, captives were able to recapture market share in Q1 that was largely held by credit unions and banks. Captives accounted for 26.9% of new vehicle financing in the first quarter, up from 24.7% of the total share in the first quarter of 2022.
In this episode of “Weekly Wrap,” editor Joy Pizzolatto and deputy editor Amanda Harris share market updates and what stories to expect in the week ahead.
Subscribe to “The Roadmap Podcast” on iTunes or Spotify, or download the episode.
The Big Wheels Auto Finance Data 2023 report, the only tabulation of the top 200 auto lenders by outstanding, is now available.
transcript:
Editor’s Note: This transcript was generated by software and is being presented as is. Some transcription errors may remain.
Joey Pizzolatto 00:10
Hello everyone and welcome to Auto Finance News’ roadmap since 1996, the nation’s leading newsletter on automotive loans and leasing. It’s Monday, June 20th. And I’m Joey Pizzolatto. Connected to Amanda Harris. Here’s our weekly take on what happened in auto finance for the week ending 16 June 2023. In general economic news, US retail sales rose in May despite macroeconomic challenges, with the value of retail purchases climbing 0.3% after a 0.4% gain in April. It should be noted that the figures have not been adjusted for inflation and do not include auto and gasoline, sorry auto and gasoline sales ticked up 0.4%, according to the Commerce Department. The Fed also paused rate hikes over the past 15 months on June 14, indicating officials may resume efforts to curb inflation later this year. The benchmark federal funds rate sits at a target range of 5% to 5.25%. In automotive news, TrueCar last week announced the reduction of 24% of its workforce, or approximately 102 positions, in line with cost-cutting and restructuring efforts. At the same time, Michael Darrow, the company’s chief executive, resigned after four years at the helm of the company and vacated his seat on the board. We estimate that the restructuring will result in $20 million in expense savings after one-time $7 million costs related to severance and benefits. Similarly, the chief executive at Power Sports Rumble resigned yesterday amid allegations of misuse of resources and an ongoing proxy battle Friday, Thursday saw the company appoint a proxy group as CO leader. As interim CEO, Marshall Chesrowan, former chief executive of RumbleOne and founder of used car retailer Room, offered his resignation to the board of directors on June 11, and it took effect on June 15. According to the company’s 8k filed on Thursday with the US Securities and Exchange Commission. The resignation comes at a time when there are allegations of misuse of company resources in the chess era. Several market updates also came this week after Rumble announced they would hire Ridenow Powersports co-founder Martin Tach as interim CEO. Captors were able to regain market share in Q1 with the withdrawal of incentives amid increased supply, largely held by credit unions and banks. According to Experian, captive held a 27% share of new vehicle financing in the first quarter, compared with a total share of 25% in the first quarter of 2022. Banks held 26% of the total finance share, down from 30% a year ago, and credit unions held 25%, up from 22% in the first quarter of 2021. Vehicle financing is on the rise as stimulus slowly returns to the market amid improving supply, the captive share of new vehicle financing has arrived. 54% is up from 50% in the first quarter of 2022, but still below the quarterly pandemic peak of 57%. Banks accounted for more than 23% of new vehicle financing in 2021 while credit unions accounted for 17%. Meanwhile, stimulus spending rose 65% year over year and 14% month over month to $1,947, but is well below pre-pandemic levels. According to JP Morgan. Higher interest rates are also leading consumers to opt for short term loans, while leasing is making a comeback. Amanda? What’s Happening There? Amanda Harris 03:47
yeah, so you know, basically because interest rates are still very high, even though rate hikes have stalled for the time being, they’re still very high, and that’s basically pushing anybody who Kind of being able to afford, you know, a higher monthly payment for a shorter period of time, not to pay more interest is really what’s driving them to make that decision and go that route. So we’re seeing loan terms go up to 48 months, leading to an increase in the share of shorter loan terms and driven primarily by prime consumers who can afford maybe a little bit lower monthly payments but not paying as much Want to Interest. Along the same lines, we are seeing that fewer people actually finance their vehicles. So share financing on new vehicles was a little over 79% in the quarter and is down from 84% a year ago. So there are fewer people who are financing normally and are going to take out cash again to save money at that interest rate. I know firsthand that the interest rates being quoted right now are very high, much, much higher than they were a few years ago, as I also know firsthand. So you’re seeing more people moving away from financing, but when they’re financing they’re trying to find some way to save on that monthly payment. So while we’re doing that let’s learn a short term loan, another way is to lease, leasing has always been a way to, you know, get a lower monthly payment, it’s a way to save money . And usually its duration is short. And, you know, there’s usually some incentive there as well, because it usually brings people back to the same, usually even the same dealership, but at least the same make and model. I am not So there are incentives to lease. So we’re seeing that in the first quarter of new vehicles move back a little bit to around 18%. But that’s still way below what it was. So it used to be, you know, in that 30%. I don’t know if we’ll ever get back to that 30%. And if we do, it will take some time. But right now, it’s moving towards around 20%, in the next quarter, by the end of the year it could be around the 20-21% mark, as I’m hearing it could reach. But again, 30% is like that historical level. And from everything, we know, it’s not going to get back to that level. And a lot of that’s just because there’s not a lot of inventory, there’s still a lot of profitability in retailing. So you know, some people out there are prioritizing. We also know that some are prioritizing meeting pent-up demand and rentals and some other places where OEMs will sell their vehicles through auctions as well, you know, there are different channels. So there’s a lot of factors that will keep leasing from really moving forward, but it’s kind of XM, again, on that side. There it is again, prime consumers wanting to save money. So really who’s leading some of the things we’re seeing, but we’ll just have to watch it and see how it plays out. Joey Pizzolatto 06:29
Yes, we definitely will. And I think hopefully, as you said, things will continue to grow. That’s it for today’s episode. Thanks for joining us on Roadmap and be sure to follow us on LinkedIn and Twitter. Next time we’ll see you online here at autofinancenews.net.
Source: www.bing.com
