The coronavirus pandemic has made things interesting for the automotive industry. Like many other businesses, car dealerships and auto lending took a hit due to the pandemic. According to a report from BusinessWire, new vehicle registrations with financing were down from 87.62% in Q2 2019 to 85.54% in Q2 2020, while used vehicles with financing declined from 40.33% to 36.75% in the same time frame. However, by the beginning of summer sales rose quickly, according to the same BusinessWire report; used vehicles in particular grew by 0.2% compared to last year. This increase in sales can be attributed to the desire to avoid public transportation during coronavirus.
Another sign of improvement is the decrease of loan delinquencies. According to findings from a study by TransUnion, consumer level delinquencies reached 1.5% in Q2 2020 and are up 27 basis points from Q2 2019. While delinquencies did go up slightly during the beginning of the pandemic, most lenders, including credit unions, have been seeing a downward trend in the months since. Consumers made their car loan payments a priority even as many lost their jobs. Of course, coronavirus-related stimulus funds contributed to that as well and now have run out, so making those payments on time may become a lot more difficult for borrowers.
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As we begin looking toward the rest of this year and into 2021, auto lenders must keep an eye on how many new vehicles are being sold. While used vehicle sales have gone up, the demand for newer cars will still remain fairly low. Second, longer loan terms could pose a problem for lenders and consumers alike. According to an article from SWBC, the average auto loan term is around 24 to 72 months, but terms as long as 84 months are not rare. Open Lending typically advises against loans for terms longer than 72 months, and particularly now because lenders could see delinquencies spike.
Finally, as the election (and results we may not see for a few weeks) and the New Year approach, it will be especially important to see what direction the economy moves. Hopefully it will be for the better, but Open Lending can help your credit union say ‘yes’ to more auto loans and get your creditworthy, prime and near-prime members into an auto loan that suits their needs, no matter what the future brings!
Contact Open Lending today to learn more about saying ‘yes’ to car loans!