The first quarter has come and gone, and we are still seeing red flags in retail auto, and subsequently, the auto finance market. According to J.D. Power:
We have the wrong supply for current demand.
Vehicle production is not aligned with consumer demand. Manufacturers produced more sedans when buyers were in the market for crossover utility vehicles (CUVs). Because of this, half of all auto brands, and six out of 10 vehicle models lost sales volume in 1Q.
Overall supply is much greater than demand.
Dealer inventory closed out 1Q at 4.1 million units, representing an increase of approximately 300,000 units from 1Q16, and a half-million unit increase from 2015. What causes concern here is that analysts depict today’s consumer demand as identical to that of 2015, meaning supply is much greater than demand.
Incentive programs aren’t aligned with demand.
Industry-wide, the average manufacturer incentive for 1Q was $3,900. This comes after closing out 2016 with incentives as high as $4,000 per vehicle. Comparatively, these incentives are even higher than those in 2008/2009, when dealers needed anything possible to close just one sale.
In the midst of all this, loan terms continue to get longer.
Loans terms continue to lengthen, with 72 month terms accounting for 33.9% of new-vehicle sales. As you well know, this doesn’t bode well for defaults and delinquencies down the line.
Your Role in Helping Dealers Navigate Industry Trends
With dealers struggling to keep pace with last year’s levels, your institution is probably beginning to see a reduction in loan volume. To that end, what are you doing to help dealers achieve their business goals?
Now, more than ever, it’s important that you think beyond rate and loan term. After all, you want to be competitive and protect your loan portfolio at the same time. Those two goals are already stretched tight with current lending standards.
Consider how your institution helps dealers serve their consumer base, and how you can better act as an extension of the dealership team. Evaluate your institution based on this service model checklist: