Delinquencies are giving us a sign 👀

Hey, everyone. Well, the union story is hot again. The United Auto Workers won a landslide election victory at a Volkswagen plant in Tennessee—the UAW got 73% of the vote after losing elections in both 2014 and 2019. Where this happened matters: The South is the least unionized part of the country. 

So? This UAW victory means we’ll all be paying close attention to the union’s upcoming effort to represent workers at two Mercedes-Benz plants in Tuscaloosa, Alabama. The vote is scheduled for early May. What do you think will happen?

—CDG

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The Ultimate Auto Lending Rundown

Paying attention to the trends taking shape in auto lending and dealership F&I departments is one of the most important things you can do to really understand the momentum of the car industry. So let’s unpack a handful of recent (and important) headlines…with some CDG context, of course.

The headline: Auto credit availability improved in March for the second consecutive month, thanks to loosening credit across sectors.

• The channel-by-channel breakdown: Used loans via independent dealers loosened the least, while certified pre-owned loans loosened the most.

The context: Improving credit availability is relative. While access did improve last month, it’s still tighter than it was this time last year across all channels and most lender types (aside from loans from auto finance companies). Take a look at this graph →

Why is this happening? Some conditions for credit availability (aka access to loans for new and used cars) have improved this spring—both the subprime share of loans and approval rates have increased, which are wins for overall availability.

But…many credit availability factors moved against consumers in March. Yield spreads widened (meaning auto loans were less attractive relative to bond yields for bigger investors) and term lengths shrank, to name a couple.

The bottom line: While there are still headwinds for consumers to qualify for auto loans relative to this time last year, we’ll take what we can get…because even marginal improvements in access to credit can translate to more movement on dealer lots.

Next up?

The headline: Overall auto loan performance is taking us back to the early 2000s…and not in a good way. With that ⬆️ improved credit access, actual loan performance was mixed last month. Delinquencies declined but defaults increased.

On the heels of high delinquency rates in 2023 (delinquency rates on credit cards and auto loans jumped to their highest since the Great Recession last year), delinquencies of 60+ days fell last month, but they were up 8.5% annually.

Overall, 1.88% of auto loans were severely delinquent in March. And…you guessed it: That figure is down from February but still the highest rate for the month of March since at least 2006.

And defaults? They increased by 8.5% monthly and 33.4% annually in March. The year-to-date default rate for this year through March is about 3.23%, or where it was around 2010.

I’ve been watching this trend for a while now: 

The context: Delinquency often spikes in Q4 before leveling off or slowing down in Q1—typically, it builds up over the course of the year. But given that delinquencies and defaults are hovering around levels not seen in a decade-plus at the outset of this year, it’s hard not to wonder whether the starting point for the typical increase in delinquencies over the course of the year is higher than experts (and consumers, no doubt) would want it to be. Will it only get worse from here?

Hard to know for sure, but one thing to keep in mind: Yes, interest rates are high. Yes, gas prices have increased 2.8% so far in April, according to AAA. Yes, negative equity is a threat (20.4% of new-vehicle sales with a trade-in had negative equity in the fourth quarter, the highest in two years, per Edmunds).

But, according to consumer sentiment data, consumers’ views of buying conditions are better off today than they were a year ago. So the sky certainly isn’t falling just yet.

And finally?

The headline: Cash, high credit scores, and repos are the key concepts to keep in mind through the rest of the year, according to the recent 2024 Consumer Banking Association conference.

The context: There are a few important stats to unpack here, care of the speakers at the CBA conference →

• Cash transactions are on the rise, and that’s led to 1.2 million fewer financed transactions.

• The average loan rate was 6.92% for new cars and 11.59% for used cars in 2023. And those higher rates have led to more defaults (see above, right?). 

• The median credit score for auto finance has inched higher lately, but that hasn’t stopped delinquencies (especially among Gen Y and Gen Z buyers).

• Repossessions are increasing. Near-prime repossessions have doubled as a percentage of all repo balances since 2019.

So where do we go from here? All said and done, we’re not yet headed for disaster in the auto lending industry. Things are tighter and tougher than they were a year ago, but I’d bet a good deal of today’s lending trends are symptoms of a broader, industry-wide normalization in the post-Covid era. After all, that’s our word of the year, right?

What’s the daily routine for someone running a $4.5 billion dealership empire? David Hult, CEO of Asbury Automotive Group, told me all the details—plus gave his hot takes on the future of the US franchise model, the 15-minute car sale, and writing billion-dollar checks. This one is full of gems. Listen here.

The secret profit weapon isn’t so secret anymore, thanks to Todd Sands, Senior Vice President at CNA National. Todd and I covered a ton: his little-known tips for running an efficient business, how he’s managing the potential of $300/hour labor rates, the biggest risks to insuring EVs, the undisputed champion of catalytic converter theft, and much more. Listen and learn here.

Listen to the episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to AutoFi, Experian, CDK Global, Upstart, and CNA National for making these episodes possible.

Out of 100 dealers surveyed, 0% said their entire in-store process was digitized.

Upstart surveyed GMs, finance, and marketing leaders at dealerships across the country to peek under the hood at their online, in-store, and financing process.

Check out the survey to learn:

• Dealers’ outlook for car sales in 2024

• How advanced dealers’ online and in-store processes are today

• Biggest pain points in the financing process

• How to effectively bridge the online and in-store gap

Download here.

We’ve got tons of great jobs hitting the CDG Job Board right now. Here are some standouts for anyone looking for their next move—and today, we’ve got opps all over the country.

• OPENLANE is looking for tons of new talent—they’re hiring market sales managers across the country. In Lexington, Green Bay, and Las Vegas, to name a few.

• If today’s top story on lending was right up your alley, Westlake Financial (largest privately held auto finance company in the US) is looking for a lending advisor.

Looking to hire? Add your roles today—it’s 100% free.

• The US now has one fast EV charging station for every 15 gas stations—the number of public fast-charging stations jumped by 7.6% in the first quarter.

• NADA’s annual financial report on franchised dealerships in the US is out. One highlight? Total light-vehicle dealership sales topped $1.2 trillion.

• VinFast has added 12 new car dealers in the US.

• Tesla reported a 9% drop in Q1 revenue, the biggest decline since 2012. But shares rose after Elon Musk said production of Tesla’s new affordable EV models could begin sooner than anticipated.

• GM raised its 2024 guidance earlier this week after beating Wall Street’s expectations for Q1 earnings.

• Here’s an interesting look at how Volvo managed to get a cheap Chinese EV to US markets even in a trade war.

Thanks for reading. Have a great week—see you next time.

—Car Dealership Guy

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