During our February Market Pulse webinar our guest speakers presented an update on how the auto industry is faring given this environment. Our panelists started off discussing in-depth on the near-term challenges with affordability and keeping costs down while optimizing data and technology resources. Next, they looked ahead to the long-term challenges around preparing for expected–and unexpected–changes in the industry. 

Speakers included Dr. Rob Wescott, President at Keybridge and Tom O’Neill, Risk Advisor at Equifax. Sharla Godbehere, VP Sales - Auto Lending & Credit Unions at Equifax, will moderate an expert panel that will include Steve Greenfield, General Partner at Automotive Ventures; Marguerite Watanabe, President at Connections Insights, LLC; and Jeremy Robb, Senior Director, Economic & Industry Insights at Cox Automotive. 

During the presentation when discussing private individuals did this include small business owners? If not, is the story for small business owners similar or much different? 

Robert Wescott: Small business owners do have somewhat different views from “average consumers” and they also have quite different views from large business executives. The National Federation of Independent Businesses conducts a survey every month that gauges the views and problems that small business owners report. Generally, small businesses today are not reporting a lot of optimism in their business surveys. They have been pinched by inflation, have trouble hiring workers in the current extremely tight labor market, and are squeezed by having to pay higher wages to workers. They generally are not reporting difficulty gaining access to credit.

Marguerite Watanabe: Small business purchasers make up a key part of the dealers' vehicle sales and F&I profits and banks, captives, credit unions and non-prime auto financing sources support their dealers in getting the deals financed. Separately, lenders provide floor plan and other financing to franchised and independent dealers, some of them qualifying as small businesses. Moreover, with some of the proposed regulations with small businesses, some dealers and their lenders could be impacted.

With the rise in the cost of car ownership (maintenance, insurance, etc), what are lenders doing to ensure they're putting borrowers in auto loans that they can afford?

Jeremy Robb: I think lenders have been pulling back and one of the reasons is the rising cost (overall) of ownership, stretching the consumer's ability to cover the cost of all the additional expense increases. Lenders try to protect themselves as well as consumers from overextending credit, but overall, it is one of the reasons that credit availability has continued to tighten.

Marguerite Watanabe: As always, auto financing sources need to have the right policies in place (e.g., max LTV amounts, advance amounts). They will also need to be even more diligent than usual when they work closely with their dealers on the tougher deals to make sure customers are not over extended.

COVID seemed to obliterate the short term auto rental market. This crushed both new car sales to these companies and limited their used cars getting into the market. Is this changing?

Jeremy Robb: Rental companies definitely defleeted too much at the onset of Covid - but - that's in hindsight and at the time no one knew what would ultimately occur. Then - it became clear they had too little inventory and wouldn't be getting much from new vehicle supply for a long while, which caused them to procure more units at auction and was a factor in driving wholesale values higher. Rental units have been getting more new units over the last year as supply has grown and they dispose of those older units in various ways: direct to consumer sales, upstream channels, and wholesale auctions.

Given the consumer concerns around electric vehicles, will we see an increase in hybrids?

Jeremy Robb: We are definitely seeing a rise in hybrids now - both in terms of sales and production from OEMs. Our estimates are that hybrid share hits 21% by 2024 and peaks in 2027.

The charging infrastructure for electric vehicles is greatly lagging behind production and demand. Do you agree?

Jeremy Robb: EV charging is growing, both in the sheer # of charging stations as well as the total # of charging ports. But, yes the growth in EV sales over the last four years has far outpaced the growth of charging infrastructure to date. Some of the recent announcements in the industry to consolidate charging types (adopting the Tesla model) and forming alliances (the IONNA network) could help to speed up the gap between EV sales and charging infrastructure growth.

Earlier we saw the difference between bankcard and private card delinquencies, do you have any data on the delinquency differences between direct lending and indirect lending through dealerships?

Marguerite Watanabe: On the original vehicle purchase, there are more indirect deals than direct. Many of the direct loans are refinancing transactions. Not an apples to apples comparison.

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