Beige Book: Consumers pulling back on purchases

Lenders in some Federal Reserve bank districts reported falling demand for auto loans and slowing car sales through early July following a pre-tariff purchase frenzy in the spring. Consumers are pulling back on purchasing in several areas, including autos, as the vehicle market is defined by rising prices, fewer vehicle options amid shrinking inventory and less discounts, according to Beige Book. Financiers in four of the 12 federal reserve regions reported slowed or flat demand for auto loans, according to the most recent edition of Beige Book, published on July 16, which offers a snapshot of economic conditions in areas covered by Federal Reserve banks on or before July 7. Auto dealers in six regions reported a slowdown in sales. Loan demand weakens Car shoppers in the New York Fed region, which covers areas of Connecticut, New Jersey and New York, were met with financing challenges as lenders become more cautious, making it difficult for “the least creditworthy borrowers” to get approved for auto loans. Credit access challenges contributed to the sales slowdown, New York Fed region dealers reported. Bankers in the Cleveland Fed region also saw slower loan demand following a spike in consumer interest and purchases earlier this year. The Cleveland Fed region covers parts of Kentucky, Ohio, Pennsylvania and West Virginia. In Chicago, demand for auto loans was flat while auto insurance demand took a hit. Conversely, large financiers including Chase Auto , Wells Fargo and Ally Financial , as well as regional banks such as Huntington , reported an uptick in second-quarter originations. That increase, however, was in part due to the pre-tariff vehicle purchase rush and higher car prices. Auto sales slow The slowdown in lending across several regions follows a slowdown in sales that dealers in June. Dealers in the New York Fed region reported softer sales following the “shifted forward purchases” in March through May. Cleveland region dealers saw a slowdown in new-vehicle purchases, and dealers in the Chicago Fed region noted that the slowdown there was somewhat offsets gains from the spring. Dealers in the Philadelphia Fed region also reported a slight decline in sales, but not as much as expected following the tariff-fueled uptick. In fact, at least one dealer in the region covering Delaware and parts of New Jersey and Pennsylvania expected a sharper drop in sales. Banks in Philadelphia, unlike other regions, reported a modest increase in auto loans. Dallas Fed region dealers also saw a decline in auto sales in the district that covers Texas and parts of Louisiana and New Mexico. In the St. Louis Fed region, sales declined but loan demand remained strong. The region covers parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. [caption id="attachment_58346831" align="alignnone" width="1920"] (Courtesy/Bloomberg)[/caption] Rising prices, delinquencies As financing demand remained mixed but leaned heavily toward a decline into early this month, delinquencies for auto loans rose in some regions. A banker in Missouri reported a strong portfolio but noted that rising delinquencies in auto loans are a sign of distressed consumers. Credit performance in Q2 was largely stable at large and regional banks, with Ally Financial, Fifth Third Bank , PNC Financial and Wells Fargo reporting a dip in early auto delinquencies year over year. One thing adding to financial stress for consumers was rising vehicle prices as a result of falling inventory and tariff-related hikes, according to Beige Book. While auto dealers in St. Louis reported that manufacturers were absorbing-tariff related costs, in line with earlier reports of OEMs delaying price increases to drive sales, other regions have started to see increases at different points in the car ownership process. Production, incentives fall New York Fed region dealers reported low inventory in the new-car market and that they are passing tariff-related price increases for auto parts onto consumers. Prices grew moderately in the Kansas City Fed region, and used-car inventory costs rose , contributing to price increases to maintain profitability. At the same time, some OEMs are decreasing incentives, according to a retailer in the Dallas Fed region. By comparison, EV OEMs have ramped up in centives to drive sales as the Sept. 30 expiration of the federal EV tax credit approaches. Further complicating matters, manufacturers in the Chicago region reported a decrease in production and supply chain disruptions for heavy rare earth elements used in EVs and hybrids, according to Beige Book. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 15-17 at the Bellagio Las Vegas. To learn more about the 2025 event and register, visit www.AutoFi nance.live/AFS .

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