The auto industry forecasts a sales slump through 2021.
Borrowers are assuming more debt due to the increase in cost of goods and stagnant wages. Making disposable income harder to come by. So how do dealerships and automotive companies stay afloat during slips in demand?
Automotive companies usually look to their captive lenders in times like these. Captive lenders have the capability of lowering their lending standards to keep pace to meet sales volume objectives. When lenders lower their standards, it opens the market to more borrowers. Subprime borrowers, those who often have more cash or income than they do credit rating, are now easier to get bought with the lower lending standards.
To keep a subprime borrower from default, it is important to find the right vehicle and select the right term for the borrower. Of course a dealership wants to put them in more vehicle than the borrower can afford and is able to make the payment more attractive by extending the term to 73 to 84 months. What the buyer doesn’t understand is the longer the term the longer they are stuck with the vehicle and when they do go to trade it in, to get out of the vehicle before the term matures, there is usually quite a bit of negative equity to roll into the next vehicle finance. Which in turn starts the cycle of potential default all over again.
Experian reports that lenders are approving financing terms of 73 to 84 months. For this group of borrowers, that’s an increase of 32.1% of new vehicle loan share. For pre-owned, loans lasting 73 to 84 months made up 18% of share. While 30-day and 60-day delinquencies are on the rise. To give you an example of how auto financing has changed, twenty years ago 48 months was the most popular loan term.
Don’t get caught in the slump of decreased demand.
Subprime Dealer Services have an affordable program to get subprime shoppers through your showroom door. Take advantage of the lending companies loosening their lending standards. Our program delivers leads of potential buyers who have been out shopping in your area possibly from your competitor but for some reason decided not to buy. Let us help you move more metal and keep your dealership from feeling the industry decline.