Although auto sales have been up through the first half, a number of analysts are expecting sales to drop through the end of the year.
The first sign of trouble is that sales were down year over year through July, which is typically the start of one of the most active sales periods of the year, according to TransUnion. For example, third-quarter originations have totaled on average 5.5% greater than other quarters for the past three years, but in 2017 originations during the quarter only outdid other quarters by 3.4%. With sales in July already down, 2018 is on track to fall short of 2017 totals.
“The slowdown is a challenge for the auto finance industry and in addition to that, the pullback in near prime and subprime is crowding out some of the funding for prime consumers,” Brian Landau, senior vice president and automotive business leader at TransUnion, told Auto Finance News. “There’s more competition now and less demand, and it causes some challenges for the incumbents and some of the new entrants.”
One solution TransUnion is highlighting in a report released today is promoting consumer awareness of refinancing. Only two-thirds of non-captive auto finance companies mention refinancing on their websites and less than 50% of consumers are aware that they can refinance their auto loan, Landau said. Even if consumers are aware, currently only 12% end up going through with the process.
“We haven’t seen a lot [of lenders] entering auto refi,” Landau said. “Refi is an unexploited market and not a lot of lenders are capitalizing on it.”
There is a spike in refinance activity within a few days of purchase, especially among consumers looking to maximize the benefits their existing depository bank provides, according to the report, which analyzed 1.5 million refinanced loans from 2013 to 2014.
The average consumer decreased their monthly bill by $52 per month and achieves a 2.4% reduction in APR. Lenders looking to boost their portfolios in the second half of the year may find refinancing an attractive alternative product, Landau said.
“First half of the year was great because of the tax reform and folks had some additional dollars to go out there and spend,” he said noting that tariffs, rising interest rates, and shrinking incentives provide challenges moving forward. “Most pundits are expecting the industry will show those headwinds [in the second half of 2018].”1 - Reader Likes This Post