The Plight of Auto Borrowers
The pandemic has altered how customers purchase goods, services, and pretty much everything else. Every industry has been impacted, from manufacturing to membership-based businesses like gyms, hairdressers, and similar establishments. However, a fresh pandemic is about to alter the business environment for the foreseeable future.
The GREAT Auto Loan Crisis of 2023 has just begun.
Washington, DC, is a city renowned for its diverse cultures. One side is overabundant, rich, and generally better off than the other, and it appears to be evenly divided between the two. There is literally no finer illustration of two contrasting lifestyles coexisting in the same location than Washington, DC. However, for some reason, the state has seen a sharp increase in missed payments and general defaults on auto loans.
Nearly 23% of DC residents are currently one payment behind on their auto loans, according to an extremely sobering statistic provided by experian themselves. Approximately 14% and 11% of borrowers are behind on their auto loans by more than 60 and 90 days, respectively.
What we are witnessing is a sharp increase in unpaid balances, repossessions, and general auto loan defaults across the country. Independent dealerships now have greater inventory, but it hasn’t yet had an impact on used car dealer pricing, black book values, MMR, or auction prices. It is not surprising that lenders are beginning to tighten their standards and interest rates are continuing to rise way beyond what is feasible for the average consumer, given how well the car industry may signal economic upheaval. There might not be enough customers for dealerships as credit standards continue to tighten.
Large purchases are starting to be avoided by consumers, and generally speaking, the market is going through a corrective phase. Therefore, it is currently up to the dealers to adapt to these challenging circumstances, keep moving forward, and draw lessons from the mistakes made in 2008.
What follows then?
Interpretation and experience are the deciding factors. Many dealerships will reduce their spending on marketing, hire fewer people, shrink their inventory, and take on less risk. This, however, is not a workable solution at this moment. People who are willing to push through and can accept the challenge of continued growth even in a down economy are given opportunities when the economy goes through difficult transitions like the one we’re currently going through. Therefore, it is up to you as a Dealership—franchise or independent—to decide whether to take on the cost of growth in this financial environment.
This will split up numerous dealerships and possibly cause many family-run businesses to fail. But these difficult times will undoubtedly distinguish between winners and losers.
What are the next steps for dealers?
The best course of action for a dealership in a bad economy is to keep investing in their marketing, and staff, and making sure that the automobiles are purchased with profitability and scalability in mind. One of the most crucial things a dealership can do, in my opinion, is buy cars at the proper price, which is the last clause of the preceding phrase. With revenue at an all-time high, dealerships have grown way too accustomed to how much money they invest in their cars. A lot of dealerships may soon come to an end as a result of this poor behavior.
When it comes to purchasing vehicles at inflated prices, dealerships would be best served to change bad habits rather than tighten their belts. Whether you are a dealership owner or work in the loan industry, it is typically advisable to lean into difficult times like these.
How can dealerships embrace the present?
Marketing is the solution, as strange as that may sound. The goal is to present yourself to the right customers, who are properly motivated to make a purchase and, of course, have the income, employment history, and financial resources to back it. Of course, customers with good credit would be the best to market to in these tough times, but that is incredibly impossible given the state of the economy.
Nowadays, the majority of consumers are classified as subprime or non-prime borrowers. Dealerships must change with the times when there are more negative credit borrowers than good credit borrowers. Whether that means expanding your network of lenders to include those with the potential to lend to borrowers who fall into the subprime or non-prime categories, or perhaps going all in on dealer borrowing for the buy here, pay here model.
When will auto dealerships start to rebound?
Even though the news seems quite dismal, it won’t persist as long as the recession did. Journalists covering the auto industry already predict that by 2024 we will experience a recovery in inventory, prices, interest rates, and other similar factors. There is not a single forecast that could be accurate without a crystal ball, though. Because there are so many factors to take into account, it is difficult to predict how long the auto loan crisis will last.
We recognize a high level of things as a marketing firm that focuses on generating subprime auto leads for car dealers. In our opinion, things will become a little more challenging for dealerships that aren’t used to dealing with these customers, but there are plenty of things that dealerships can do to adjust to these new circumstances. Whether that entails updating the inventory, adding a new loan portfolio, or improving marketing.
Whatever the situation, dealers have developed adaptable responses to practically any societal problem, and this just looks to be another one.
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