A report by Experian showed that captive lenders not only took a large share of new car loans from credit unions and banks, they also cut out the used car market.
Experian’s financial market report for the third quarter showed that the share of captives in the number of new car loans and leases increased from 54.2% in the third quarter of 2019 to 59.1% in the three months. ending September 30.
Captives are a small player in used car lending, but their share of the number of loans rose 3.4 percentage points to 11.9% in the third quarter.
Captives are manufacturer lending subsidiaries and include Toyota Financial Services, General Motors Financial, Ford Credit, Infiniti Financing and Volkswagen Credit. Their gains this year are largely the result of aggressive zero percent financing bids after COVID-19 was declared a pandemic in March.
Cash sales also increased in the third quarter. Experian found that new car cash sales accounted for 17.6% of new car transactions in the third quarter, down from 13% a year earlier. Cash was used for 66.3% of used car purchases in the third quarter, up 6.1 points.
While banks have started to lose share over the past 12 months, the share of credit union lending has been declining for two years.
Credit unions accounted for 10.6% of the number of new car loans in the third quarter, compared to 11.6% a year earlier and 14% in the third quarter of 2018. Their share of used car loans was 29.1 % in the third quarter, compared to 29.4% a year earlier and 32.7% in the third quarter of 2018.
The value of used cars continued to rise. The average adjusted clean retail price was $20,083 in the third quarter, compared to $18,989 a year earlier. However, Edmunds, a car buying analytics firm based in Santa Monica, Calif., reported on Nov. 12 that used car values began to decline from September to October and predicted the trend would continue. This year.
Other trends uncovered by Experian, an Ireland-based company that provides credit reporting and marketing services, include:
- Many prime borrowers (661 to 850) returned to the used car market in the third quarter after many captives ended aggressive promotions put in place last spring.
- Amounts borrowed for new and used cars rose in the third quarter largely due to “consumer preference as consumers lean toward larger, more expensive vehicles,” according to Experian. Small SUVs were the most purchased vehicles, accounting for 26% of loans in the third quarter, followed by midsize SUVs at 24.2%.
- Average credit scores for new auto loans rose sharply from 719 in the third quarter of 2019 to 725 in the third quarter of this year.
- Monthly payments have also increased, but at lower rates than the gains on the loan amount. It was the product of longer durations and lower interest rates.
“With affordability always being a priority, especially during the pandemic, lower interest rates have certainly helped consumers keep monthly payments manageable,” said Melinda Zabritski, senior director of automotive financial solutions at ‘Experian and report author.
“As the market evolves and financial situations change, it’s important that lenders and dealers stay close to trends and make strategic decisions that help move the industry and consumers forward in their vehicles,” he said. she declared.
Despite changes in market share, the overall growth of the automotive portfolio this year has been relatively stable and slightly below normal. The Fed’s G-19 consumer credit report showed this year started with a weak gain of 3.2% in the first quarter from a year earlier. Gains were 3.5% in the second quarter and 3.6% in the third quarter.
The third-quarter gain is just below the median 12-month growth of 3.8% from December 2015 to December 2019, including a peak that hit 7.1% in December 2016.