It goes without saying that last year was challenging for the financial services industry.
Many within the industry not only navigated business challenges, but also had to understand and adapt to the varying circumstances consumers were, and still are, facing.
Among those severely impacted were auto lenders, often needing to remain flexible as trends fluctuated and changed rapidly. Despite constant change, the industry continues to rebound, and automotive lenders have an opportunity to continue to move toward recovery by staying close to the data and trends.
During the initial months of the pandemic, incentive programs encouraged a shift to new vehicles, ultimately driving success for captives—they not only maintained market share but managed to increase it. But other lenders, including credit unions, had a different experience.
According to Experian’s “Q4 2020 State of the Automotive Finance Market” report, credit unions held 10.63% of the market for new financing, down from 11.06% in Q4 2019. In the used market space, there was less of a dip, as they held 23.79%, down from 23.94% last year.
While more consumers have opted for new vehicle financing, there is opportunity for credit unions to regain overall market share, especially by focusing on the used vehicle market. Leveraging data and trends will help credit unions identify areas for growth in 2021.
In Q4 2020, we saw more consumers opt for new vehicle financing. The percentage of used vehicles with financing decreased from 40.84% in Q4 2019 to 34.59% in Q4 2020.
However, used vehicles still account for 52.85% of financed vehicles, proving that they remain a popular choice for many vehicle shoppers, especially considering affordability.
With vehicle prices continuing to rise, affordability remains a concern for many consumers.
Experian research showed that the average loan amount for a used vehicle increased $1,643 in Q4 2020, reaching $22,467. Meanwhile, the average monthly payment for a used vehicle loan increased to $413 compared to $395 a year ago.
Despite the increase in the average loan amount and monthly payment, used vehicles remain a more budget-friendly option when compared to the new market.
For instance, the average new vehicle loan amount is over $10,000 more than the average loan amount for a used vehicle, averaging $35,228 in Q4 2020.
Additionally, the average monthly payment for a new vehicle loan increased from $563 in Q4 2019 to $576 in Q4 2020. With that in mind, used vehicles are likely a more affordable option for budget-conscious consumers.
The automotive finance landscape looks much different than it did at the beginning of last year and will likely continue to shift and change in the months to come.
While not everyone’s recovery will be the same, leveraging data and keeping close to trends as they evolve will be crucial for driving growth and expanding market share over the coming months.
By assessing these trends, credit unions can meet the differing needs of consumes while implementing the best strategies to drive success.
MELINDA ZABRITSKI is senior director of automotive financial solutions for Experian.