Last week I slumped against my car in disbelief as I heard the air rapidly escape the tire. It flattened in a matter of seconds.
I’d recently gotten four new tires and repaired the power steering pump. I had replaced a timing belt, water pump, and brakes. A rock had cracked my windshield and the car sported a bright, shiny new front end after a run-in with a deer.
I sighed. Thoughts of a new car held appeal. And yet, I’d sunk enough cash and parts into this one that it was practically new. Aside from my run of bad luck and bad timing, I liked the vehicle.
My ruminations at the gas station that day are not unlike those of many American consumers who carefully evaluate the pros and cons of an automobile purchase.
Do I really need one? New or used? Loan or lease? What is an affordable monthly payment?
Research findings this week examine automobile purchase and lending trends and expectations.
‘People can have the Model T in any color—so long as it’s black.’—Henry Ford
“The auto industry will enjoy another year of growth in 2014 with new car sales topping 16 million for the first time since 2007,” notes Edmunds.com’s 2014 Auto Sales Forecast. An increase in sales is credited to pent-up demand from those who rode out the recession, as well as from about 300,000 lease returners who will buy or lease again.
“The main drag on sales growth expected in 2014 comes from the needs for stronger economic growth to allow many of the remaining sidelined buyers… including young people, lower-income households, and small businesses.”
In spite of this expected increase in auto purchasing, growth is anticipated to be “less in 2014 than in any year of the recovery to date, posting less than 6% growth.”
With increased sales come additional loans, according to Automotive News. In this article, TransUnion says “it expects the average automotive debt per borrower to increase about $1,000 next year, from an estimated $16,942 in the fourth quarter this year, to $17,966 in the 2014 quarter.”
Perhaps not coincidentally, with increased loans come increased delinquencies. “[TransUnion] expects the percentage of auto loans past due 60 or more days to increase to about 1.19% in the fourth quarter of 2014.”
However, delinquency levels overall are expected to “remain well below levels observed during the recession and its immediate aftermath.”
‘Money may not buy happiness, but I’d rather cry in a Jaguar than on a bus.’–Francoise Sagan, writer.
“Americans Borrowing Record Amount to Buy Cars,” says cnbc.com. Here, Experian Automotive reports that for the first time ever, buyers borrowed an average $27,000 for an auto loan.
It’s not surprising that loan amounts are on the upswing as average transaction prices, too, are up—1.9% in February, to $32,160.
What is consumer response to higher loan amounts? Longer terms, reports USA Today. “Loans with terms longer than six years—73 to 84 or more monthly payments—jumped 19% in the fourth quarter compared with the period a year earlier to 20.1% of all new vehicles.”
Average monthly payments hover around $471.
Another technique to finding that lower payment is to lease, “which hit a record at 26.5% of new-car transactions last month.”
The subprime lending market is somewhat troubled as “The percentage of loans packaged into securities that are more than 30 days late rose 1.43 percentage points to 7.59% in the 12 months ended September 30… That’s the highest in at least three years,” notes Bloomberg in “Subprime Auto Boom Besieged by Late-Payment Jump…”
Further, “Vehicle repossessions for finance companies are rising along with delinquencies, increasing 1.23 percentage points to a rate of 2.84% in the last three months of 2013, the highest recorded since Experian Automotive started tracking the data in 2006.”
This is credited to sourced subprime loans. But even though defaults are up, they remain within expectations.
Credit unions are faring well in the auto loan market, Mike Schenk, CUNA’s vice president of economics and statistics, tells Automotive News. This is because of improved dealer relationships and credit union membership growth, he says.
At 2013’s conclusion, credit unions held $72 billion in new-vehicle loans outstanding, up from around 13% the previous year. Used-car loans held by credit unions were at $128 billion outstanding, an increase of 10%.
“At the end of 2013, used cars made up almost 20% of total credit union loans. New-vehicle loans were about 11% of the total. That’s a significant increase… At the beginning of the downturn, new and used were about 17% each of total credit union loans.”
Find your niche
How are marketers reaching out to niche consumers?
“Auto Marketers Drive into the Future with Mobile, Video” observes eMarketer. Here you’ll discover effective marketing tactics that appeal to youthful, nonprime borrowers who seek “longer loan terms to decrease monthly payments.”
It is observed, “Financing deals are most often struck on the dealer lot… Marketers at the local dealer level are best positioned to capitalize on the opportunity presented by this windfall of new buyers.”
Mobile, tablet, and video ads are important outreach methods, each laying claim to prompting 34% of buyers to start researching vehicles.
This is important, notes J.D. Powers and Associates, which found “auto shoppers were using digital research nearly twice as often to choose their lender, from 6% in 2008 to 11% in 2013.”
I decided to replace my flattened tire rather than acquire a new vehicle. But I expect that like many consumers, I will eventually need to get a new set of wheels.
When you consider various auto loan products and target markets, know what lies ahead on the auto-lending horizon.
Keep in mind the words of Colin Powell: “Always focus on the front windshield and not the rearview mirror.”