At last week’s Auto Finance Summit, I argued that automotive lending and leasing was in prime position for growth not just in 2011, but over the next five years. I stand by that assessment, and am buoyed by yet another data marker.
We tracked Google’s automotive financing index, which tracks the search activity for lending terms like “loan, lease, car loan, car calculator.” On a year-over-year basis, the index has been negative since the start of 2009. Still today, the YOY search velocity for auto finance was down 5.79% on Oct. 20. But, interestingly, other Google search indexes related to lending have gone positive on a year-over-year basis. For example, the credit and lending index, which monitors search terms such as “credit, credit card, chase, loans,” turned positive in mid-September. And the personal finance index, which marks search terms like “bank, bank of america, wells fargo,” has been out of negative territory since last April.
To me, this means automotive finance still has yet to fully reverse course and return to its true growth rate, especially considering that car sales are up year-over-year. Hold on to your hats, folks. The fun is just starting.
Rate mark up by dealers is not a risk issue. It is used by dealers as a profit center on the transaction. It is like marking the car up with a supplemental sticker. You can use almost any measure and profit will corolate to less sophisticated consumers
Seems like it might be awhile before auto gets into that positive trend. Consumers are hanging onto their cars longer, and many are only replacing their vehicles out of necessity as opposed to out of desire. I can understand why credit cards would be in greater demand these days, particularly when out-of-work consumers need money to pay for essentials.
Three times this year the Google Auto Finance Index came close to catching up with last year’s pace, but all three times it dropped back down. What’s surprising, too, is that new-car sales are higher than they were last year, yet the Google Index for 2010 has not managed to overtake 2009.
A huge opportunity for growth would be in pre-owned leasing. For the life of me, I have never understood why banks try to compete with OEM Captives who have their own “death wish.” There is really no competition in the space, other than a few credit unions regionally. One late model pre-owned vehicles, the big depreciation “hit” has already been taken. Depreciation is more predictable than with new vehicles, based on data easily available. RVI Group is ready, willing, and able to insure the residuals. Even with conservative residuals payments are compelling for shorter terms. Half a Car’s “New to You” program comes to mind, with dealers doing business with consumers more often based on the shorter term. New methods are available to ensure the vehicle leased itemized in the lease paperwork is an accurate depiction of the actual unit.
With leasing, depreciation credits are available to the lender as the title is in their name during the term of the lease. What’s not to like? Some one is going to figure this out and get way out ahead of competitors