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Hey everyone,
Before you dive into today’s lending stats, I wanted to let you know our latest CDG Podcast episode aired this morning:
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— CDG
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Welcome to the Market Pulse—your cheatsheet to auto retail, built to help dealers price right, stock smart, and stay ahead.
73.9%: Auto lending approval rates as of September.
17.4%: The share of approved subprime loans, up from 16.6% in August, and 15.1% a year ago.
31.8%: The share of loans with terms longer than 72 months.
(Source: Cox Automotive’s Dealertrack Credit Availability Index)
Auto loans are getting easier to land, but the deals are carrying riskier elements.
September was the easiest month to get an auto loan since 2015, and the fifth straight month of looser lending, according to Cox Automotive’s Dealertrack Credit Availability Index.
By the numbers…
Approval rates hit 73.9%.
The share of approved subprime loans rose to 17.4% from 16.6% in August. (A year ago it was 15.1%.)
A record 31.8% of loans ran longer than 72 months.
And 57.8% of loans carried negative equity, the highest since April. Relatedly, down payments slipped to 12.8%, the lowest since September 2022.
Simply put: This is what happens when buyers are still coming to market, but with vehicle prices where they are, landing a deal requires longer terms, smaller down payments, and more buyers rolling debt from their old car into the new loan.
NOTE TO DEALERS:
“These structures can make a purchase easier to fit into a budget, but the flexibility borrowers gain up front comes at the cost of flexibility later.”
That’s how Cox Automotive put it, and it’s the best way to frame the situation. Dealers should expect less flexibility later, especially when those customers come back to trade.
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Based on what we covered above, we went back through Daily Dealer Live to pull insights from two operators navigating affordability and negative equity.
Take what works for your store and skip what doesn’t.
Do: Remember that negative equity often comes from the brand the customer is leaving.
Eric Frehsée, president of Tamaroff Group in Southfield, Mich., said on an Oct. 5 episode of DDL that the negative equity his stores see often traces back to the brand the customer is leaving.
“The majority of the vehicles that we’re seeing coming in underwater are a lot of the customers and the brands that we’re conquesting, where their values aren’t being kept as high as ours are.”
Eric Frehsée
The upside: For customers staying in the brand, he said Honda’s lease structure helps. And to our point on risking flexibility down the line, he noted that resale value and the structure of the next deal shape how hard it is to get a customer into another car.
“Honda’s gonna take care of them with a subvented lease price and a higher residual. If they choose to purchase their vehicle at the end of the term, they can. They’re not tremendously underwater,” he added.
Admittedly, though: Some customers have “tens of thousands of negative equity,” which Frehsée said, “makes it very hard for the customer to get into a new car.”
Do: Understand that a working captive program can get pulled back, but that dealers can push to restore it.
Spencer Webb, general manager at Audi Salt Lake City, said in the same Daily Dealer Live episode that lease rates aren’t coming down and the cost of money isn’t something a dealership can control, so the opportunity is in programs like near-new leasing, which Audi Financial Services now offers.
“Last year it was a massive, massive success. This year, it was going great, and in June or July it was going maybe too well, so Audi Financial Services started pulling back a little bit from it. And then when they did, dealers raised their hands and said, ‘No. We’d really like to get this back.’ And Audi Financial Services, to their credit, gave it back.”
Spencer Webb
To his point: Some factors are completely out of dealers’ hands, and when they make it tough to structure a deal, a good relationship with the captive can help get the right programs in place, or back in place.
Do: Use free maintenance to show long-term value in doing business with your shop.
Frehsée said, in his lease-heavy Detroit market, buyers are used to a new vehicle every three years, and “it’s all about the cheapest car, the cheapest price, the best payment.”
That’s why his stores offer benefits beyond the deal price itself.
“Other things we’re doing to combat affordability is we’re offering all of our customers what we call Tamaroff Total Care. We give them the first three oil changes and first three tire rotations, introducing them to our service department so that they can see all the different services that we offer, utilizing all of our technology, and really just trying to build on our retention.”
As he sees it: When buyers are shopping on payment, free maintenance gives a store something to show beyond the number on the pencil. It also takes the first few service visits off the customer’s budget and gets them into the service lane early.
Don’t: Force what your market isn’t craving.
“We at Audi Salt Lake City haven’t done any 84-month contracts this entire calendar year,” Webb said, adding that their market drives it, and that they don’t have a term-length ban in place.
“I probably desk at or near 10 or 15 deals a week at least. And not that we close all those deals, but at a minimum, I’ve not seen any 84 months at my store. Consumers are less likely to take it.”
Negative equity is a touchy subject.
Dealers didn’t start the fire, but they’re the ones sitting across the desk from the customer, trying to make the numbers work when they don’t.
We’d love to hear more about how that’s being handled between now and year-end.
Have a tactic that’s working? A lender relationship that gets deals done?
