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- Rising auto loan delinquencies, new car incentives inch up, car insurance premiums balloon
Rising auto loan delinquencies, new car incentives inch up, car insurance premiums balloon
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Hey, everyone. Pretty sure I’ve stumbled across a brand new collab between SpaceX and Tesla…
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Yes — this unidentified (driving) object was spotted by the Crawford County Sheriff’s Office in Missouri traveling west across the country.
I’ll give you one guess where the drivers were headed…
—CDG
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Each week, I curate the top 5 automotive industry headlines based on the topics CDG readers engaged with the most on social media. Let’s get started.
1. Rising delinquencies cast shadow over auto lending
In light of tough economic conditions, consumers are becoming more cautious about taking on auto debt.
Driving the news: The latest data from TransUnion shows that auto loan originations took a dip in Q1 to $6 million, down 0.4% year-over-year.
Why it matters: An increased number of buyers are paying cash to circumvent interest rates. But, for consumers not able to do that, a slowing economy, rising unemployment, and higher borrowing costs are crunching wallets, resulting in a growing number of missed loan payments.
By the numbers: According to the New York Fed, around 8% of auto loan balances were newly delinquent (30 days late) in the second quarter.
60+ day delinquencies in the subprime cohort increased 30 basis points year-over-year to 4.91%, reported Morgan Stanley.
Prime 60+ day delinquencies have stayed relatively flat coming in at 0.49%
Bottom line: With the labor market starting to bend, auto lending will likely continue to see higher delinquency rates, especially in the subprime segment.
No wonder auto lenders are tightening up…
2. Auto loan access declines in July as lenders grow cautious
Auto credit access, a measure of how easy it is for consumers to get financing for car purchases, shrank for the fourth month in a row.
Why it matters: As the Federal Reserve scrutinizes the economy for clues on when to cut interest rates, auto lending conditions are a massive indicator of consumer stress. Fear of rising defaults is prompting banks to tighten credit standards, making it very hard for those with lower credit scores to qualify.
Quick facts: All lenders tightened in July, with banks experiencing the most tightening for the fifth consecutive month while auto-focused finance companies tightened the least.
What’s more: Other factors moved against consumers this month. Yield spreads widened, indicating that the market is more worried about risk. Term lengths and down payments held steady, but the average approval rate is down 4% year-over-year, all of which are no help to consumers.
Bottom line: The tightening of lending standards is creating a two-tiered auto market. While those with cash or large down payments are still buying cars, many everyday consumers are being shut out.
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One bright spot? Automakers and dealers understand the financial strains car buyers are under. And they are incentivizing the heck out of new cars to try and compensate…
3. New car affordability hits 3-year high in July
Car buyers are catching a slight break as new vehicle affordability inched up in July, reaching its best level since 2021, according to Cox Automotive.
By the numbers:
The average auto loan rate dropped by 30 basis points to 10.22%, the lowest rate in a year.
The average monthly payment for a new vehicle fell by 1.5% to $753, down from a peak of $795 in December 2022.
The number of weeks of median income required to purchase a new car decreased to 37 weeks, a 6.2% improvement from last year.
Zoom in: Increased incentives ( 7% of the average transaction price) are helping to offset costs as inventory levels stabilize from June’s DMS software outages. The U.S. supply of unsold new vehicles stood at 2.79 million units at the start of August, down 3.6% from the previous month.
What’s next: As incentives continue to rise, dealerships are likely to focus on moving older inventory to make room for incoming 2025 models. Meaning, that car buyers will likely be able to secure better deals, especially on outgoing 2023 models.
But there is one cost of car ownership that isn’t coming down anytime soon…
4. Car insurance premiums keep rising
Car insurance premiums are set to hit almost $2,500 before next year, a spike from 2023 fueled by elevated vehicle prices and repair costs.
Big picture: The average car insurance rate has already risen 15% in 2024 to an annual price of $2,329. But insurance marketplace Insurify estimates that costs will continue to skyrocket throughout 2024.
Premiums are forecast to cost $2,469 annually by 2025, 22% or $450 more than in 2023.
Insurance costs have been rising faster than the cost of other goods and services. Last summer, the Bureau of Labor Statistics estimated insurance premiums were rising at a pace of 17%, compared to the average inflation rate of 3%.
Bottom line: High insurance costs place additional strain on consumer wallets, making it more difficult to justify vehicle purchases. Even if car prices continue to drop, factors like this mean that affordability could stay out of reach for some buyers for the foreseeable future.
Have a tip for our editorial team? Send us your scoop at [email protected].
But consumers who are in the market for a new car should look for ones built to last…
5. The most durable car models of 2024: Toyota receives top marks
Driving the news: iSeeCars examined more than 400 million vehicles to figure out which models drive the farthest and last the longest.
By the numbers:
Vehicle longevity is improving. The top models listed by iSeeCars have up to a 36% chance of lasting 250,000 miles. While the industry average hovers around 8.6%, many buyers believe 100,000 is the farthest their vehicle can go.
Most of the sturdiest models are SUVs, which comprise 16 of the top 30 longest-lasting models.
Toyota makes up roughly one-third of the top models in the list, with the top spot going to the brand’s Tundra pickup.
Via iSeeCars.com
Why it matters: The more durable vehicles get the happier customers are with their purchase and the more loyalty they show to their brand. On the other hand, sturdier vehicles typically mean longer trade cycles and less service over their lifespan, which can hit dealer profits in the long run.
That’s a wrap for now – make sure you’re following along on X, LinkedIn and IG for more real-time updates.
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—CDG
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