Many consumers ask themselves: To buy or not to buy a new car?
An upcoming article in Consumer Reports, as reported at USA Today, suggests potential buyers seriously consider this financial commitment.
“You’re about to spend a lot more than you think and more than you probably need to,” the article warns. Depreciation is a concern and would-be buyers should think about their purchase motivations.
Is a new car desired because of safety issues? To save dollars on maintenance and gas costs? Or are upgrades sought?
Consumers may not always choose the most reliable or affordable vehicle. Consumer Reports observes that many buyer picks do not correlate with vehicles boasting reliability and high road test performance.
Clearly, many variables come into play as consumers debate whether to buy, what to buy, and how much to spend.
The car buying process can be stressful as well as exciting.
Your credit union is poised to help. When you relate to the consumer’s mindset, you will better help meet financial needs and forge relationships.
This week: A review of consumer preferences, the auto lending environment, and discussion of inroads credit unions make in this competitive arena.
‘The moment you are old enough to take the wheel, the responsibility lies with you.’ –J.K. Rowling
Consumers have a responsibility to make sound auto purchase decisions. Do you know their preferences and wants?
Learn “4 Automotive Consumer Trends That Set the Stage in 2016 for Digital Marketers” per The Moran Group.
These emerging trends are impactful for not only marketers and the automotive industry, but also for financial providers:
1. Consumers do their research. On average, car shoppers “have 24 research touch points” and 95% of this is done digitally. Mobile devices drive the digital trend, up 400% in the last few years. “Online video… [is] the single most influential factor that drives brand consideration and discovery amongst new and used car hopefuls.”
2. Brand commitment does not prevail. Seventy-eight percent of the time, the first brand explored is not the brand purchased. More than 50% of buyers do not know what they will eventually decide. “With the right marketing tactics, a customer originally interested in another make can be persuaded” to make a different choice.
3. Buyers seek the bottom line. Another fact consumers look up in buying decisions is list price and MSRP, up 25% over a single year. Seventy-percent of this growth was mobile-driven. Trade values, too, are important facts for consumers.
4. More information leads to transparent negotiation. Dealers must accommodate consumer demand to update inventory lists, pricing, and other details. The Internet prompts this transparency.
In short, digitization has transformed the car shopping experience.
Did you know that “Consumers Want Advanced Safety Features on Their Next Vehicle”? Of 1,012 U.S. car shoppers surveyed last September, 70% will be more apt “to consider vehicles with autonomous features such as parking assist, collision avoidance and automatic braking.”
These options are more important than color choice, and 65% will change brands to get the technology they want.
Further, 83% believe advanced safety functions top infotainment features. But 47% would like to sync their car with a smart watch—provided they owned one.
And, 57% want manufacturers to better integrate smartphones. For instance, 39% prefer smartphone navigation systems over that built into the car.
‘Don’t reinvent the wheel, just realign it.’ --Anthony J. D’Angelo, inspirational author
Now that we know what consumers want, let’s explore loan and sales trends.
See the “TransUnion 2016 Auto Finance Forecast” from at SubPrime Auto Finance News. Economic stability will grow originations in the subprime market, and such consumers will be able to improve their credit scores with ability to repay loans.
The TransUnion forecast indicates delinquencies will not change in the upcoming year, remaining at 1.11%.
Loan balances will be on an upswing: Average borrower debt is expected to rise from Q4 2015’s $17,985 to $18,509 by Q4 2016.
Meanwhile, outstanding auto loan balances hit a record $987 billion in the fourth quarter, led by finance companies and credit unions, notes autonews.com.
This is a 12% climb from the prior year and the biggest balance since 2006 when Experian began reporting the statistic.
Banks, however, still held the lion’s share of auto loans. Their balances reflected a 7.6% increase.
Lenders enjoyed the consequence of improving vehicle sales, up 8% over the quarter. For the entirety of 2015, “light-vehicle sales hit a record 17.5 million units.”
Subprime loans account for up to 20% of all loans, bringing a small hike in 60-day delinquencies that is “not yet a cause for concern.”
In considering auto lending as a facet of the overall state of the economy, see an opinion at The Wall Street Journal in “How Auto Sales May Dent U.S. Growth.” “What goes up usually comes down,” the article notes.
Although 2015’s record auto sales boosted the economy, “Americans’ appetite for autos and trucks is falling from those highs.”
That slowdown hurt gross domestic product in the fourth quarter, and it’s set to dent first-quarter output, too.
According to Steve Blitz, chief economist at ITG Investment Research, “That number can’t go up to infinity.”
There are fewer old cars to replace, and bad weather did not chase shoppers from car lots in Q4, as is often the case.
Plus, sales were less robust in January. General Motors indicated a 0.5% uptick in sales, and Ford reported sales dropped 2.8% from the prior year—after overall sales rose 14% in January 2015 from the prior year when dealers noted double-digit sales hikes.
‘I love to get behind the wheel and get competitive.’ --Jason Statham, English actor
How do credit unions currently fare in the auto lending marketplace?
“Booming Auto Sales Boost Growth of Credit Unions,” according to The Boston Globe. “Credit unions are grabbing a larger share of the auto lending business, and that has helped translate to higher membership in Massachusetts and nationwide” as consumers join credit unions to obtain loans.
Mike Schenk, senior economist at CUNA, notes that auto loans attracted 35-40% of new members. From June 2015, a 13% increase in memberships was observed from June 2014.
Credit unions held 16.8% of auto loans in Q2 2015; an increase of 15.3% from two years prior, according to Experian.
Also, Forbes says “Credit Unions Gain Share in Auto Loans.” According to Steve Rick, chief economist at CUNA Mutual Group, “It’s mainly due to rates,” as credit unions beat the banks at about 1.25 percentage points.
Concludes the article, “Credit unions… can compete in other ways. Besides low standard rates, credit unions are often more willing than other lenders to offer extended-term loans, even as long as 84 months.”
Know consumer wants and habits, and know your credit union holds a competitive edge in the auto lending marketplace—from counseling members to closing the loans.
As “Shark Tank” panelist and entrepreneur Barbara Corcoran observed, “The best time to expand is when people are asleep at the wheel.”
Is your competition awake?