The 2015 North American International Auto Show (NAIAS) wrapped up Jan. 25. Organizers say “attendance topped out at 808,775, a 12-year high,” according to The Detroit News.
An improving economy and falling gas prices were likely contributors to stellar attendance levels. “We’re absolutely excited,” said 2015 NAIAS chairman Scott LaRiche. “The resounding rebound of the economy really was a big difference, and that means the auto industry is recovering as well.”
LaRiche notes the average age of a vehicle on the road now is about 11 years. Show turnout led organizers to believe consumers may be “back in the mood to buy.”
As consumers consider new vehicles in the wake of the 2015 auto show, and as manufacturers note rebounding sales, it is important to know the auto lending environment. This week, get revved for a look at what’s around the corner in auto loans.
‘Drive-in banks were established so most of the cars today could see their real owners.’—E. Joseph Cossman, entrepreneur
At least three sources indicate the auto industry is shifting into high gear.
“New Vehicle Sales in 2015 Off to a Strong Start; January Retail Sales Highest Since 2004,” reports J.D. Power. In January 2015, new-vehicle retail sales are expected to reach 932,000 units, representing an 8.5% uptick compared with January 2014.
Says John Humphrey of J.D. Power, “The sales momentum seen throughout 2014 is continuing into 2015.”
Good weather and an extra weekend in January this year contributed to the positive sales environment.
In fact, “the industry is on a trajectory to post the second-largest-year-over-year retail sales growth in the past 17 months,” notes Humphrey.
As gas prices remain low, trucks and SUVs are popular; consisting of 55.4% of sales.
Plus, “2014 Light-Vehicle Sales Highest Since 2006,” says the National Automobile Dealers Association (NADA). Light-vehicle sales in 2014 reached 16.4 million units, 5.8% above 2013. Market share of auto sales was 46.8% in 2014—an increase of 1.4% from 2013—and light-truck share of sales was 53.2%, an increase of 10.1% over the previous year.
“Equifax Reports Auto Loan Balances Near $1 Trillion, 2015 Starting Out in the Fast Lane,” says PR Newswire. “Auto lending is at a record high of more than $975 billion, accounting for nearly one third of all non-mortgage consumer debt,” according to Dennis Carlson, deputy chief economist at Equifax.
“Further, while write offs have increased slightly from last year, delinquency rates remain near record lows.”
Consumers appreciate available financing options, and “The improving economic situation has finally afforded consumers the opportunity to rekindle their love affair with the automobile.”
Equifax shares some interesting facts:
‘Cars are the sculptures of our everyday lives.’—Chris Bangle, American auto designer
Research reveals interesting consumer perspectives on paying auto loans. “Long-term Car Loans Popular but Pricey in Long Run,” notes USA Today.
Experts believe preferences for six- and seven-year auto loans will persist through 2015 and beyond with increasing vehicle costs. “If we could all afford to finance vehicles for 36 months that would be great,” says an Experian spokesperson. “But you’re starting to look at a car payment like a mortgage payment.”
Approximately 40.3% of new vehicle loans had terms ranging from 61 to 72 months in October and November. And, 25.7% of loans issued matured at 73 to 84 months.
Only 3.7% of loans ranged from 25 to 36 months; just over one-quarter from 49 to 60 months.
Consumers prize their vehicles as “Car Payments Come First, As Always,” according to WardsAuto.
Why? Because “Cars are a productive asset,” says Steve Szakaly, chief economist at NADA.
Auto loan delinquencies and defaults are “relatively rare,” and “almost nonexistent in our industry,” notes a TransUnion vice president. Loans of 60 months or more delinquent comprise 1% of active financing, 5.3% of which were subprime.
Meanwhile, 51.7% of FICO survey participants believe the level of auto loan delinquencies will stay the same, and “21.1% expect a drop in auto loan delinquencies, the lowest number in three years.”
‘A business, like an automobile, has to be driven in order to get results.’—B.C. Forbes, founder, Forbes magazine
Subprime lending is a hot topic.
“There certainly appears to be room for growth in the subprime sector,” a TransUnion representative tells SubPrime Auto Finance News. “There’s certainly more competition. There’s more liquidity in the market. Overall, the loans are performing.”
And, “Subprime Approvals Could Jump Nearly 13% in 2015,” according to CNW Research data. “The number of subprime used-vehicle buyers rose 115% to more than 1.16 million in December versus 1.08 million reported for the closing month of 2013.”
In the subprime arena, lenders must focus on loss frequency and severity.
A study by the Center for Responsible Lending presents four implications of subprime auto lending growth:
One innovation for auto manufacturers is the autonomous vehicle, perhaps offering opportunity for a car to practically drive itself.
Although cars may eventually drive themselves, they will not finance themselves. Consider how you might innovate auto loans and processes to appeal the borrowers of today and tomorrow.
LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via@Bray_Lora and visit the CUNA blog, “The Research Roundup: Economic Perspectives.”