Top 5 themes defining auto finance in 2024

The automotive industry of 2024 was defined by lingering affordability concerns, still-high car prices, election uncertainty, tight credit availability and cautious consumers. The average rejection rate for auto loans through October increased to the highest reading since 2013 at 11.4% , up 0.4 percentage points year over year, according to the Federal Reserve Bank of New York ’s Consumer Expectations Credit Access Survey published Oct. 1. Still, the survey shows that more consumers are likely to apply for an auto loan in the near future compared with October 2023 and with the previous reading in June. The auto finance industry is eyeing potential regulatory changes, further interest rate cuts, increased leasing and the fate of federal tax credits that could shape auto sales in 2025. 1. All eyes on affordability While the Federal Reserve has enacted two rate cuts this year , lowering the benchmark rate to a range of 4.4% to 4.75%, affordability remains top of mind. Interest rates are part of the challenge, but higher costs for vehicle insurance , gas and groceries weigh on consumers’ ability to keep on top of their auto payments and other bills. Credit access also remains tight , with many lenders holding standards steady and prioritizing returns and credit performance over fast originations growth. While car prices are stabilizing and incentives are gaining steam , the average monthly new-vehicle payment was still over $700 in the third quarter. 2. Credit performance weakens Worsening credit performance continues to be a concern across all credit spectrums, with 30- to 59-day delinquencies up YoY for prime and nonprime securitized auto loans in October. Annualized net losses also rose 23 basis points (bps) YoY to 0.73% for prime securitized auto loans and 10 bps YoY to 9.25% for nonprime loans in October. Most auto lenders reported a rise in delinquencies and net charge-offs in the third quarter as consumers faced elevated costs for everyday expenses. 3. Boosting efficiency, CX with AI Artificial intelligence and machine learning use have ramped up this year as lenders explore how implementing them can assist in originations, servicing and customer experience. Lenders have worked to use AI in a way that is responsible, efficient and stress-free for dealers and consumers who are navigating inflationary pressures. Bank of America integrated technology to streamline the application, approval and refinancing processes this year, and invested in machine learning to sort incoming phone calls and emails. Similar tech investments have allowed Chase Auto to “ fund electronic contracts in minutes versus days ,” Anne Alburo , national credit executive at Chase, said during a panel discussion at Auto Finance Summit 2024 in October. 4. Tax credits drive EV sales, leasing EVs had an up-and-down year in 2024. Residual values were in question for a lot of the year as used vehicle prices for EVs fell at a faster pace than they did for internal combustion engine vehicles. As of Nov. 21, the Exponential Used Electric Vehicle Index, which measures wholesale used EV values, sat at 91.15, an 8.4% decline year over year. By comparison, the Exponential Used Vehicle Index, which measures the wholesale prices of used vehicles, ticked down 0.3% YoY to 136.78 as of Nov. 21. Meanwhile, 2024 has been an active year in EV leasing, driven by federal tax incentives that could face challenges under President-elect Donald Trump ’s administration. Tax incentives have helped drive leasing activity, with 49% of new EV registrations leased in Q3, according to TransUnion ’s Q3 2024 Credit Industry Insights Report, published Nov. 12. EVs accounted for 9% of new car sales in September, according to an Oct. 24 report by Kelley Blue Book . EVs also have driven leasing, with lease sales up 4 percentage points YoY in Q3 at 25% of new-vehicle registrations, according to TransUnion. 5. Regulators eye add-ons Compliance has also kept the industry busy this year, but with a new presidential administration , a lot could change in 2025. That said, regulators once again took aim at aftermarket sales practices this year. The Federal Trade Commission alleged that Asbury Automotive was engaged in “payment packing” and deceptive sales practice s that had a “disparate impact” on Black and Latino consumers, according to an Aug. 16 complaint. Asbury has denied the allegations and will fight the accusation in court. In other notable compliance cases this year, TD Auto Finance is scaling back its commercial auto lending and other low-margin portfolios after facing $3.1 billion in fines for money laundering charges from the Department of Justice and Financial Crimes Enforcement Network . Separately, the Consumer Financial Protection Bureau fined TD Bank $28 million for allegedly reporting inaccurate customer information to credit agencies. In July, the CFPB fined Fifth Third Bank $20 million related to alleged illegal practices involving auto loans and fake accounts.

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