Loan terms are shortening, leasing is making a return and market share is trending back toward normal breakdowns as interest rate increases slow.
Loan terms of up to 48 months made up 12.5% of new-vehicle loans in the first quarter, up from 9.5% a year ago, according to Experian. Shortened terms and an increase in cash payments were largely driven by prime consumers looking to save money while interest rates are elevated.
Leasing, too, is picking up as a way for consumers to lower their monthly payments. In Q1, 18.23% of new vehicles were leased compared with 21.67% during the same period a year earlier. Still, leasing is not likely to reach pre-pandemic levels in the next few years.
With incentives returning amid increased supply, captives were able to retake market share in Q1 that had largely been held by credit unions and banks. Captives in the first quarter held 26.9% of new-vehicle financing, up compared with 24.7% of total share in Q1 2022.
In this episode of the “Weekly Wrap,” Editor Joey Pizzolato and Deputy Editor Amanda Harris share a market update and what stories to expect in the week ahead.
The Big Wheels Auto Finance Data 2023 report, the only tabulation of the top 200 auto lenders by outstandings, is available now.
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Hello, everyone and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing. It’s Monday, June 20. And I’m Joey Pizzolato. Joined by Amanda Harris. This is our weekly wrap on what happened in auto finance for the week ending June 16 2023. In general economic news US retail sales rose in May despite macro economic challenges with the value of retail purchases climbing 0.3% following a 0.4% gain in April, According to the Commerce Department, should be noted that the figures are not adjusted for inflation and exclude autos and gasoline in excluding, excuse me autos and gasoline sales ticked up 0.4%. The Fed on June 14 also pause rate hikes that are defined the past 15 months, signaling that officials would likely resume tightening and an efforts to curb inflation later this year. The benchmark federal funds rate sits at a target range of 5% to 5.25%. In automotive news, TrueCar last week announced a 24% reduction of his staff or approximately 102 positions in line with cost cutting and restructuring efforts. At the same time, the company’s chief executive Michael Darrow stepped down and vacate his seat on the board after four years at the helm of the company. Through our anticipates the restructuring to save 20 million in expenses after a one time $7 million costs related to severance and benefits. Similarly, in power sports rumble ons chief executive resigned yesterday resigned Friday Thursday excuse me, amid allegations of resource misuse and an ongoing proxy battle, with the company appointing a proxy group as CO leader. As interim CEO, Marshall Chesrown, RumbleOn’s former chief executive and the founder of used car retailer room offered his resignation to the board of directors on June 11, and it took effect June 15. According to the company’s 8k, filed Thursday with the US Securities and Exchange Commission. The resignation comes as chess round faces allegations of misuse of company resources. Rumble on announced they will appoint Martin Tkach co founder of RideNow powersports to serve as interim CEO this week also brought several market updates. With incentives returning amid increased supply captors were able to retake market share in q1 than it has had largely been held by credit unions and banks. captives in the first quarter held 27% of new vehicle financing up compared with 25% of total share in q1 2022. According to Experian. Banks held 26% of total finance share down from 30% A year ago and credit unions held 25% up from 22% in q1 2021. Vehicle financing is picking up as incentives slowly return to market amid improving supply captive share of new vehicle financing landed at 54% up from 50% in q1 2022, but still below a quarterly pandemic peak of 57%. In 2021. Bank share of new vehicle financing was just over 23% While credit union share stood at 17%. Meanwhile, incentive spending main jumped 65% year over year and 14% month over month to $1,947 but remains well below pre pandemic levels. According to JP Morgan. high interest rates are also pushing prime consumers to opt for shorter term loans while leasing may be taking making a comeback. Amanda? What’s going on there?Amanda Harris 03:47
Yes, so you know, basically as interest rates are still very elevated, even though the rate rises have pause for now, they’re still very elevated, and it’s basically pushing anybody who can kind of afford, you know, a shorter term, higher monthly payment to kind of not pay as much an interest is really pushing them to make that determination and go that route. So we are seeing loan terms go up the up to 48 months that share of shorter loan terms rise and getting driven by mainly prime consumers who can afford maybe a little bit of a higher low monthly payment but don’t want to pay as much an interest. Along those same lines, we are seeing fewer people actually finance their vehicles. So share financing on new vehicles was just over 79% and the quarter and that’s down from 84% a year ago. So there are fewer people who are financing in general and are going to cash out again to save money on that interest rate. I know this firsthand that interest rates being quoted right now are very high, very very high higher than they were a couple of years ago as I know firsthand as well. So you’re seeing more people kind of go away from financing but when they are financing they’re trying to find any way to save on that monthly payment. So when we’re doing that a short learn term loans Another way is leasing leasing has always been a way to go You know, kind of get lower monthly payments, it’s a way to kind of save money there. And usually it carries a shorter term. And, you know, usually some incentives there as well, because it usually brings people back into the same, usually even the same dealership, but not least the same make and model. So there are incentives to leasing. So we’re seeing it climb back a little bit is around 18% In the first quarter of new vehicles least. But that is still down from what it was. So it was, you know, used to be in that 30%. I don’t know if we’ll ever get back to that 30%. And if we will, it’s going to take a while. But right now, it’s trending more towards maybe around 20%, next quarter, toward the end of the year around that 20 21% mark is kind of what I’m hearing that it might get to. But again, 30% is kind of that historical level. And from everything, we know, it’s not going to come back to that level. And a lot of that’s just because there’s not a lot of inventory, there’s still a lot of profitability in retail sales. So there’s some, you know, some prioritizing there. We also know that there are some prioritizing to meet some pent up demand and rental and some of the other places that OEMs would sell their vehicles into as well as the auction, you know, kind of channels there as well. So just a lot of a lot of factors that would keep leasing from really taking off, but it is kind of XM, again, on that side. It’s again, the prime consumers wanting to save money. So that’s really who’s leading some of these things that we’re seeing, but we just kind of have to watch it and see how it plays out.Joey Pizzolato 06:29
Yes, we definitely will. And I think the expectation, like you said is things continue to grow. That about does it for today’s episode. Thanks for joining us on the roadmap and be sure to follow us on LinkedIn and Twitter. We will see you online at auto finance news.net in here next time.