Tag Archive | "Loans"

Spending on New Cars Hits All-Time High, Even as Loans Stretch to Record Lengths

While May might not have brought the big uptick in sales we’ve seen in recent months, preliminary data suggest that automakers took in record revenues, with the average transaction price of new cars, trucks and crossovers sold last month climbing by at least 4%, reports The Detroit Bureau. 

All told, U.S. buyers spent a record $52 billion for their new vehicles in May, in part, due to a sharp, year-over-year decline in incentives, according to several firms that track monthly sales data. A separate study suggested that motorists are covering those higher costs by stretching their loans out longer than the industry has ever seen, an average 67 months.

“New vehicle sector and segment preference indicates consumers are confident about the economy and their finances,” said TrueCar President John Krafcik. “Not only are these shifts to premium brands and utilities telling from an economic indicator standpoint, they signal sizable revenue gains automakers should reap this year.”

The data tracking firm estimated that the typical vehicle had an average transaction price, or ATP, of $32,452, up 4% rom May 2014. Lower incentives played a role, but manufacturers have also seen buyers show more confidence by loading up on options and by trading up to higher-level vehicles. TrueCar estimated sales of premium brands jumped 10.6% during the first four months of 2015 compared to just 4.8% for mainstream brands.

BMW and its Mini subsidiary, saw prices jump in May by 6.5%, according to a separate analysis by Kelley Blue Book. Mazda saw a similar increase, while Ford and General Motors prices climbed a more modest 4.3% and 4.2% respectively. Toyota’s average price rose just 2.3%, even though it trimmed incentives by more than 10%, year-over-year.

With only a handful of exceptions, notably including General Motors, Hyundai and Kia, most makers trimmed rebates and givebacks as the U.S. auto market continued to gain ground. And analysts noted that the modest overall sales numbers for May actually misrepresent the market’s momentum, as the peculiarities of the industry’s reporting system counted fewer so-called “sales days” last month than in May 2014.

The surge in spending also reflects a year-long shift from fuel-efficient small cars and alternative-power vehicles to larger passenger cars, pickups and SUVs.

“With the national average price of gasoline down nearly a dollar per gallon on average from one year ago, truck and SUV demand remains strong, elevating average transaction prices,” Karl Brauer, senior analyst for Kelley Blue Book, said in a statement.

The steady climb in new car prices might come as a surprise to those worried about relatively stagnant middle-class earnings and the rising wealth gap. In reality, most new car buyers today register on the upper end of the middle-class spectrum. Even for compact cars, industry research often shows household income levels approaching six figures.

And buyers are simply stretching out their purchases to hold down monthly payments – while also encouraged by continuing low interest rates. Gone are the days of three and even four-year loans. Borrowers extended their loans terms during the previous quarter to 67 months on average, longer than ever for new cars, according to Experian Automotive.

“While longer term loans are growing, they do not necessarily represent an ominous sign for the market,” said Melinda Zabritski, Experian’s senior director of automotive finance.

On the plus side, the trend allows consumers to buy more vehicle without busting the household budget. On the downside, however, it means they likely have to keep those vehicles longer in order to avoid being upside-down on loans when trading in, cautioned Zabritski. That could foretell slower future growth of the automotive market.

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ABA: Delinquencies Continue Broad-Based Decline in Q3 2014

WASHINGTON — The American Bankers Association (ABA)’s chief economist said this month he is optimistic that the economy will continue its upward trend. Driving his positive outlook are rising consumer confidence and falling delinquency rates.

In the third quarter 2014, delinquencies for seven out of the 11 credit categories monitored by the ABA showed declines. Its composite ratio, which tracks delinquencies (30 days or more) in eight closed-end installment loan categories, fell 6 basis points to 1.51% of all accounts — a record low that is well under the 15-year average of 2.30%

“Consumers are on surer financial footing, which bodes well for future delinquency rates,” the ABA’s Chief Economist James Chessen said. “While people are clearly ready to spend again as economic activity picks up, the overwhelming majority of consumers continue to keep debt at manageable levels.”

He added that strong economic growth has boosted job creation and supported income growth, making it easier for consumers to meet their financial obligations. Lower gas prices, he noted, are also helping to free up resources for everything from new purchases to debt repayment.

The association noted that the delinquency rate for auto loans originated through the direct-to-consumer channel remained flat from a year ago, while the delinquency rate for auto loans originated through auto dealers fell from 1.55% in the year-ago quarter to 1.51%.

“Consumers are smiling every time they fill up their tanks,” Chessen said. “ Every one-cent decline in pump prices puts about $1 billion back into consumers’ pockets, which means their paychecks are going much further. The signs are pointing in the right direction, but consumers hold all the cards when it comes to continuing to prudently manage their finances.”

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U.S. Authorities Accuse Toyota Arm of Discriminatory Loan Pricing

Toyota Motor Credit Corp, the lending arm of Toyota Motors Corp, could face an enforcement action from U.S. authorities over its pricing of auto loans through dealerships and could be forced to reimburse borrowers or pay a fine, the company said late Friday, reported Reuters.

On Nov. 25, the U.S. Department of Justice and the Consumer Financial Protection Bureau sent a letter to Toyota Motor Credit, saying that its auto lending practices “resulted in discriminatory pricing of loans to certain borrowers in contravention of applicable laws,” the company said in a filing with the U.S. Securities and Exchange Commission.

Unless Toyota Motor Credit agrees to a resolution with the agencies voluntarily, which would include “monetary relief” in addition to changes to its loan pricing policies, the Justice Department and the CFPB were prepared to bring an enforcement action, the filing said.

Toyota Motor Credit added it would work with the agencies to reach a resolution.

A spokesman for the CFPB declined to comment. A spokeswoman for the Department of Justice did not immediately respond to a request for comment.

In December 2013, Ally Financial Inc (ALLY.N) was forced to pay $98 million to resolve similar discriminatory loan pricing charges from the Justice Department and the CFPB.

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Lincoln, VW Captives Rank Highest in Customer Satisfaction, JD Power Reports

WESTLAKE VILLAGE, Calif. — Auto finance sources cannot focus their efforts on only one or two areas of the financing process and expect to have satisfied customers; they need to excel in all areas throughout the life of the loan or lease. That was the conclusion of J.D. Power and Associates’ 2014 U.S. Consumer Financing Satisfaction Study.

This year’s study, which looks at auto loans originated in the indirect and direct-to-consumer channels, includes used-vehicle financing. The firm also expanded the period in which customer satisfaction with a finance source is measured from one year to four years. Key factors studied included on-boarding process, billing and payment process, website, and phone contact. The study was also conducted in two vehicle segments: luxury and mass market. Satisfaction is calculated on a 1,000-point scale.

“Satisfying auto financing customers is not contingent on excelling in one area; it’s a continuum across the entire process, with the stage set during the on-boarding process — or the initial discussion with customers — and continuing through the billing and payment process,” said Mike Buckingham, senior director of the automotive finance practice at J.D. Power. “The execution of finance process best practices is more important than the innovation of new tools to complete transactions. All lenders use mostly the same technology, but the ones that execute better across all areas are the ones with the most satisfied customers.”

Buckingham noted that technology does play a key role during the billing and payment process, which is the factor with the most impact on overall satisfaction. Many customers seek not only self-service tools to set up an automatic payment system, they also want tools to confirm that their payments were received and processed and to check the balance of their account, with many preferring to conduct these activities using their computer, tablet or smartphone.

“Lenders need to make it easy for customers to access their account anytime anywhere,” said Buckingham. “That means providing a website and apps that are reliable and that make the most critical elements of the billing process easily identifiable.”

The study also found that overall satisfaction in both the luxury and mass market segments is significantly higher for loans on new vehicles (844) than on used vehicles (817). That difference is driven largely by significantly higher satisfaction in the billing and payment process and website factors among customers with a new-vehicle loan origination (846 and 840, respectively) than among those with a used-vehicle financing origination (819 and 817, respectively).

The loan and lease experience differs by segment, with overall satisfaction in the luxury segment significantly higher for leases (847) than for loans (840). The opposite is true in the mass-market segment, where satisfaction is significantly higher for loans (815) than for leases (807).

Ensuring customer satisfaction is critical for finance providers, as more than 90% of highly satisfied customers (overall satisfaction scores of more than 800 points) indicate they “definitely will” use their current lender in the future. Further, more than 50% of customers indicate that they selected their provider based on inputs other than dealer recommendations.

Avoidance of billing and payment errors is the most influential key performance indicator impacting satisfaction. Incorrect payment amounts listed on statements, misapplied payments, or incorrect/not updated personal account information leave customers with a perception that their finance provider is disorganized.

For the second consecutive year, Lincoln Automotive Financial Services (867) ranked highest in the luxury segment and performed highest in the billing and payment process and website factors. Lexus Financial Services (859) ranked second and Audi Financial Services (854) ranked third.

Volkswagen Credit ranked highest in the mass market segment with a score of 836. It also had the highest scores in billing and payment process (tied with Ford Credit) and website. Ford Credit ranked second with a score of 835 and Honda Financial Services ranked third with 829.

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More Car Buyers Are Struggling to Make Payments

The repo man is getting very busy as a growing number of car and truck owners are struggling to make their monthly auto loan payments, reported NBC News.

Experian, which analyses millions of auto loans, said Wednesday that the percentage of those loans that were delinquent or ended up in default with the vehicle being repossessed surged in the second quarter of this year. The rate of repossessions jumped 70.2 percent in the second quarter, with much of that increase coming from finance companies not run by automakers, banks or credit unions. Even with that rise, the percentage of auto loans that end in default is just 0.62 percent of all auto loans.

Experian also reported that the 30-day delinquency rate was up 0.2 percent and the 60-day rate rose 7 percent in the quarter. “We’re starting to see a slight uptick in the number of consumers struggling to make their automotive payments on time; however, we have to keep in mind that these percentages are still extremely low,” said Melinda Zabritski, senior director of automotive finance for Experian Automotive.

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