Data Hints at Shrinking Auto Finance Market

The auto finance market is shrinking. 

Even though car sales numbers are strong, the number of vehicles per household and the number of vehicles per licensed driver are both well below their peaks from 2005-2006, according to new data published by Michael Sivak at the University of Michigan’s Transportation Research Institute. 

The chart shows that the number of vehicles on the road is declining, a trend that we initially brought to light a few months ago. The number of registered vehicles per household has dropped by nearly 5% in the past eight years. While 5% may not sound like a big number, when there are more than 230 million registered vehicles in the U.S., 5% equates to nearly 12 million cars and trucks.

That is a lot fewer auto loans out there to be originated. While 230 million registered cars and trucks is still a sizable market for any industry, this is the first time that I’ve seen the topic of “peak motorization” being discussed. 

Cities and governments are doing more to encourage public transportation or other, more environmentally friendly modes of getting around. In his report, Sivak cites both societal pressures as well as the recent economic downturn as the likely catalysts for the declines in vehicle ownership rates. 

How should auto lenders react to this trend? 

Mindful that there likely are not going to be untapped wells of customers uncovered, lenders should spend more time and attention on the customers they have today, to keep them as customers when they purchase their next vehicles. Customer retention is going to be the marketing phrase of the day for the foreseeable future. 

That said, there are some positives in the numbers. While the number of registered vehicles declined 1.1% between 2008 and 2011 (the most recent data available), the population of the U.S., the number of drivers, and the number of households all increased by at least 1.7% during the same period.