Replies to This Discussion

Permalink Reply by Jim Sturdy on March 30, 2011 at 3:11pm

You are correct that currently we ( I run a CUSO for several large credit unions in SFLA) are experiencing a longer average payoff term (currently 39 months) than several years ago.  Some of this will reverse with the increased value in used cars that allow the dealer to take the customer out of an upside down situation where previously the vehicle was too far under water (08-10). and average terms of existing loans that were written within the last two years are significantly lower with the reduced use of extended terms ( i.e. - 73-84 months).  The trend of rates when going up will offset some of this gain, but most of the low rate/high quality customer demographics that have been booked based on tighter purchase policies don't seem affected by this issue.  Based on my previous experience as FMCC and World Omni executive, subvened rates have minimal impact on trading cycles. 

Permalink Reply by Anthony West on March 31, 2011 at 2:01am

As the average sales transaction price continues to increase, consumers are extending loan terms to offset the rising prices and keep payments within their budgets. Now that gas prices are back on the rise, it will be really interesting to see if consumers continue to shop for new vehicles.  On the other hand, maybe consumers "push the panic button" again (ala 2008) and start trading out of large SUVs and full size trucks (I think gas prices will need to exceed $4.50 for this scenario to happen) thus pushing up car sales and sending a glut of full size trucks and SUVs into the market that ultimately drive down the values of these vehicles.

If interest rates begin to increase along with gas prices (closer to the $4.00 mark), the motivation to purchase a new vehicle will be greatly diminished  for consumers and manufacturers will need to drastically increase incentives to pull people through dealership doors. Which will raise another question, could such a scenario be the beginning of yet another rebate and incentive war that could doom the automobile recovery?

The next few months will be plagued with lots of uncertainty and angst in the dealer community. Only time will tell as to whether the auto sales market will continue on the road to recovery in 2011.