Stricter Lending Means A Shift Towards Used Vehicle Market
A struggling economy and stricter lending criteria have pushed more consumers toward used vehicle loans, according to a quarterly analysis of the automotive credit market released today by Experian Automotive.
Used vehicle loans accounted for 68.13 percent of all automotive loans in the first quarter of 2009, up from 64.3 percent of all automotive loans in the first quarter of 2008. Share of loans for new vehicles fell to 31.87 percent in the first quarter of 2009, compared with 35.7 percent in the first quarter of 2008.
“Banks, credit unions and captive finance companies appear to have tightened their lending criteria as they look to mitigate risk,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “Loans are still available, but lenders are changing terms. This is pushing some consumers out of the new vehicle market and into the used vehicle market. Some finance companies that specialize in subprime loans have seen their share increase as traditional lenders move away from riskier loans.”
Independent used vehicle dealers — those dealers not affiliated with a specific manufacturer — were the biggest winners in the first quarter, seeing their share of used vehicle loans rise from 31.58 percent in the first quarter of 2008 to 34.97 percent in the first quarter of 2009. Independent dealers typically serve customers with lower credit scores and are gaining share as traditional lenders tighten their loan criteria.
Other findings include the following:
-Loans 30 days past due were up 11.3 percent year over year in the first quarter of 2009, while loans 60 days past due were up 19.5 percent.
-Currently, 2.48 percent of all automotive loans are 30 days past due, compared with 2.22 percent in the first quarter of 2008. Automotive loans 60 days past due rose to 0.82 percent from 0.69 percent.
-Consumer credit also has worsened in the past year, with the percentage of consumers who are considered prime decreasing by 2.6 percent. Conversely, the percentage of highest-risk consumers grew by 6.03 percent.
-Minnesota, Connecticut, Wisconsin, Iowa and Massachusetts boasted the highest average credit score for new vehicle loans in the first quarter, while New Hampshire, Connecticut, Minnesota, North Dakota and Wisconsin had the highest average credit score for used vehicle loans.
Los Angeles based market research firm IBISWorld estimated that over the last five years, industry revenue for Used Car Dealers in the US increased at an average annualized real rate of 0.4. Although there has been a decline in the number of used cars and light trucks sold over the five year period, the average selling price has increased, which has led to growth in industry revenue.
Rise In Gas Prices Altering Consumer Behavior
According to research conducted by Kelly Blue Book in May 2009, the leading provider of new and used car information asked what consumers thought will happen with gas prices in the next month. The results? 87 percent of new-car shoppers said they thought gas prices would go much higher, a significant jump from the 66 percent who thought gas prices would increase just a month earlier.
In both April and May, more than 60 percent of in-market new-car shoppers said that rising gas prices have either caused them to change their minds or made them think about vehicles they normally wouldn’t have considered. When asked what they would be most likely to compromise in their next new-vehicle purchase in order to save money they might need to spend on fuel, shoppers cited engine size (for example, a four-cylinder versus a V6 or V8) as the top item likely to be sacrificed, followed closely by vehicle size (for example, a mid-size sedan versus a large sedan).
In addition, 73 percent of those who saw gas prices increasing in May said they plan to change their spending habits if gas prices were to go much higher.
“As summer approaches with household budgets still pinched by the weak economy, car buyers are once again becoming very conscious of rising gas prices,” said Jack R. Nerad, executive editorial director and executive market analyst for Kelley Blue Book and kbb.com. “While we may not see the $5-per-gallon gas experienced in some areas last year, current economic conditions compounded by the pain at the pump may make $3-per-gallon gas a new threshold for car buyers – the point at which they change their mind about what vehicle to buy and how they spend their money.”