Online car sales, loans rock banks, dealerships
Given that 90% of new car purchases and half of used car purchases are funded, it’s no surprise that the lifestyle changes and digital shift brought on by the pandemic have disrupted auto loans, this secular corner of the automotive industry. Whether it is a car loan goes through a reseller, a bank or a manufacturer, new research JD Power shows that the number of customers applying for credit online has jumped into high gear.
“The pandemic has accelerated a trend in digital auto loan issuance that has been developing for some time,” Patrick roosenberg, Director of Automotive Financial Intelligence at JD Power, said on the publication of the 2020 JD Power U.S. Consumer Finance Satisfaction Survey. “Many buyers who have secured digital financing have had a great experience and will not return. the old way of doing things, even when COVID-19 is no longer a factor. “
Consumers and Banks Both Love Online Car Loans
Consumers are apparently so happy to get rid of the back-office haggling between the dealership and the bank that about a third of car buyers now complete the lending process online, JD Power found. And 40% of borrowers said they prefer it, a sign the change may be permanent.
Banks also praise the speed and privacy of online loan origination, as they can enjoy the benefits of scale by being able to receive loan applications at any time of the day.
Going digital is also making it easier to manage and collect loans. This is a measure that is increasingly important as loan deferrals from the COVID era will soon begin to expire, which could lead to a spike in default rates.
Satyan Merchant, senior vice president and automotive business leader at TransUnion, said that “although the overall percentage of auto accounts taking advantage of financial adjustment programs has declined, there were approximately 3.8 million auto accounts. . in a form of accommodation end of September.
While consumers enrolled in loan deferral programs typically experience the greatest financial hardship, the mix of borrower risks in these programs has increasingly shifted to at-risk clients in recent months, a- he declared. “But as the economic stimulus funds evaporate and consumers move out of their homes, future defaults could have an impact,” Merchant said.
Trucks are hot this year
While financing, extended warranties and other things added to the sale of a car are a major source of revenue for dealerships, the biggest issue they’ve faced this year has been a limited supply of vehicles, especially for trucks.
More and more consumers have sought to buy cars because of urban theft or to avoid public transport. The National Auto Dealers Association (NADA) recently reported that in the first three quarters of 2020, three out of four vehicles sold were light trucks – a trend that has pushed truck prices to new highs.
At the same time, average automaker incentives on new vehicles as a whole are expected to drop from around $ 5,000 per vehicle in April to less than $ 4,000 this quarter, NADA said. So even though interest rates have come down, the net result is that the average monthly payment on a new vehicle rose to $ 582 in August, up 3.2% year over year.
However, the industry has not emerged from the pandemic unscathed. NADA chief economist Patrick Manzi wrote in an October third quarter sales assessment that “although we have continued to see a steady recovery in demand for new vehicles since the April lows, vehicle sales remained depressed compared to 2019 due to various factors including inventory.
Online sales are also booming
But unsurprisingly, online car dealers are booming this year. For example, upstarts like San Francisco-based Shift, reported record results Thursday (November 12).
“This has been a transformative year for Shift, and we are entering our public business life with exciting momentum,” Shift co-CEO Toby Russell said on the results release.
Going forward, the company plans to invest in market expansion, branding and marketing strategy, as well as technology tools to improve efficiency.
As George Arison, the other co-CEO of Shift, put it: “[These] the results show that there is a clear demand for our offers.
Paul Hennessy, CEO of the online car sales platform Vroom, recently says Karen Webster that the pandemic is creating demand for automobiles as consumers find themselves stranded in their homes, worried about COVID-19 exposure and dealing in new ways with retailers and restaurants.
“We’ve always known that vehicles are an expression and an opportunity for individuals to be free – the whole idea of concepts like the open road and exploration and things like that,” he said. “But now the car has in fact become a vehicle of safety and freedom.”
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