Credit availability dips 3%, affordability improves

While affordability improved in January, credit availability worsened as lenders tightened credit standards and approval rates declined. Credit access decreased across most lender types in January, bringing the Dealertrack Credit Availability Index to 93, down 1% sequentially and 3% year over year , according to Cox Automotive . The index tracks changes in loan approval rates, yield spreads, subprime share and loan details, including term length, down payments and negative equity baselined to January 2019. Dealertrack Credit Availability Index [caption id="attachment_58337730" align="aligncenter" width="1536"] Source: Cox Automotive [/caption] Widened yield spreads and declines in term length, approval rate and subprime share contributed to worsened credit access, according to Cox. The approval rate fell 8 basis points (bps) sequentially and 160 bps YoY in January, while subprime share dipped 20 bps month over month but ticked up 60 bps YoY to 11.2%. Credit access tightened the most on new vehicles, while availability tightened the least on used-vehicle loans through independent used dealers. Auto-focused finance companies were the only lender type to loosen credit access on a sequential basis during the month. Access was tighter on a YoY basis across all lender types, with auto finance companies tightening the least and banks tightening the most. New-vehicle affordability improves Still, there were positive movements toward affordability during the month. New-vehicle affordability reached its best level in more than two years, according to Cox Auto’s affordability index released today. The average payment declined 3.2%, while the number of median weeks of income needed to purchase a new vehicle fell to 37.5 weeks compared with a revised 38.8 weeks in December. Cox Automotive/Mood's Analytics vehicle affordability index January 2024 Weeks of income needed to purchase a new light vehicle

[caption id="attachment_58337734" align="aligncenter" width="1920"] Source: Cox Automotive [/caption] The average new-vehicle transaction price also ticked down 2.6% sequentially and 3.5% YoY in January to $47,401 after trending downward for the past six months, according to Kelley Blue Book . The seasonally adjusted annual rate landed at 15 million units compared with 16.1 million in December and 15.1 million in January 2023. Incentives rose to 5.7% of the average transaction price in January, up from 5.5% in December and 2.8% a year prior when new-car supply was notably lower, according to KBB. The average interest rate on a new-vehicle loan dipped 14 basis points sequentially to 10.28% in January, contributing to a 3.2% sequential decrease in the average monthly payment to $751. Interest rates and the cost of funding have improved but aren’t likely to come down on a “fast trajectory,” Kyle Birch , president of North America operations at GM Financial , told Auto Finance News at the American Financial Services Association Vehicle Finance Conference in late January. “We’ve reached the high point; [rates] will continue to decrease throughout the year, maybe more in the second half, which would help with affordability,” Birch said, noting that affordability remains a concern for car retailers. “People that are coming back into the market that must finance a vehicle, even if interest rates get better, they are going to have a significantly higher payment in the [vehicle] they're purchasing than the vehicle they're coming out of.” Credit unions lower rates Some lenders have already reacted to expected rate decreases. About 20% of credit unions that work with Credit Union Leasing of America (CULA) lowered rates within the two months leading into the first week of February, Mark Chandler , vice president for business development, told AFN on Feb. 2 at the National Automobile Dealers Association (NADA) Show. CULA’s credit union partners originated 64,000 leases in 2022. The company added 12 credit unions to its indirect leasing platform in the past year, according to a Jan. 24 company release. Lenders are preparing for their cost of funds to decrease in anticipation of the Federal Reserve lowering rates at some point this year, CULA President Ken Sopp told AFN at NADA. “Yields will go down. ... Changing price and yield changes the cost of funds,” he said. Lenders “are able to lower rates a little before the Fed makes a move. They’re trying to grab market share.” CULA’s credit union base bolstered its lending activity in recent months to manage portfolio size, Chandler said. “Many of our credit unions, their loan pool is starting to shrink as there are more [loans] coming off than going on,” he said. “They’re trying to at least maintain, and the way they maintain is to add more loans.” Early-bird registration is now available for the second annual Auto Finance Summit East 2024 , May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross-section of industry players. Early-bird pricing ends March 15. Visit AutoFinance.Live to learn more.

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