The future is uncertain, and success or failure is not predetermined
They say nothing in life is certain, and as we head into
2023 that statement is ever more accurate. The dichotomy of future
concerns paired with positive trends is not a common occurrence. For
example, over the past 3 years we’ve seen record high small-business
start-ups at an average of almost 400K new start-ups per month,
almost 2 times the historical average, combined with historically
low small business delinquencies. One might think that would
indicate strong growth in the future? At the same time, we have the
micro-economic variations across industries. One example is auto,
where demand is high, inventory is low, interest rates are going up,
and price pressures are constantly changing.
So how do we predict what’s going to happen in future lending?
Breaking out the Crystal Ball
The reality is no one can predict what’s going to happen.
The best thing we can do is share what we know and arm auto
lenders and dealers with information to make the best decisions possible.
On that note, the best place to start is what we’re seeing
in lending (Based on Equifax’s most recent
Small Business Indices):
Small business lending is down 7.3% from a year
ago, December 2022. Before December, lending was still
slightly up or flat from previous years.
Small business delinquencies are also up slightly by
1.43% from a year ago, December 2022.
While both the small business delinquency and default
indices are low by historical standards, they are on the
upswing. They are starting to show signs of potential
For the auto industry specifically, there are also a few key
trends that are worth keeping an eye on:
A record number of dealerships changed hands in
Avg. monthly payments across all credit
tiers is up, due to increased car prices
loan volumes are at an all-time high
average credit score for borrowers has never been higher
Auto loan debt is the third-largest source of debt in
the United States
Auto loan debt grew despite
Beware of the Potholes
At Equifax, having worked with so many different companies
across a multitude of industries that leverage our data to make
more informed decisions, there’s still that nagging concern from
customers around, “what don’t we know.” In the auto space, there are
a couple of areas that could impact growth.
The first big factor are supply chains. We already have seen
how the lack of materials and microchips slowed the production of
new vehicles in 2020 and 2021. This resulted in low inventory and
higher than normal increases in pricing (both new and used
vehicles). This is not unusual considering the average annual cost
of supply chain disruptions to each organization surveyed in 2021
equated to $182M in lost revenues or costs (2022
Annual Supply Chain Report).
At the same time, one of the other big factors impacting
potential growth in 2023 is the good, old-fashioned supply and
demand economy. Inventory has started to increase as supply chains
have started to equalize and prices are starting to soften following
a number announcements from manufacturers, including Tesla (Money,
Feb 2023), about decreases in their MSRP’s. Combine that with the high
interest rates and potential for higher unemployment we’re seeing
businesses and consumers hunker down a bit.
The impact of these trends on auto lending
Going back to something we said earlier, the reality is
there’s no telling what’s going to happen in the coming months and
year(s). What we know is the last few years of ups and downs in
the auto space may not have followed historical trends. ut, as we
head into 2023 we’re starting to see more normalization. Whether
this is good or bad is yet to be determined, but at Equifax
we are confident that we have the data that our clients need to
make the best decision possible at the time they need it.