Will Lenders’ Interest Margins Continue Falling?

The end of summer is upon us once again, and pumpkin-spice foodstuffs and other products will be making their way back onto store shelves soon. Before that, there is one last summer holiday that normally brings bargain-hunting consumers to the auto dealership: Labor Day.

As with everything connected to the auto industry this year, end-of-summer auto sales will be anything but normal, which could have an impact on interest income for your bank or credit union. As temperatures begin to cool down, there’s a greater chance for more interest income opportunities to come your way.

Labor Day: What to Expect

The matter of supply due to computer chip shortages continues to be a problem going into the fall, leading to predictions for slower sales going into the Labor Day weekend. A recent Cox Automotive forecast projected that the August SAAR will finish near 14.3 million, which would mark the slowest sales pace this year. Additionally, Cox Automotive Senior Economist Charles Chesbrough said that the supply situation is likely to worsen in the weeks to come:

“Available inventory on dealer lots has been falling for months, and sales have been further constrained as a result. Soon the market will enter the Labor Day holiday weekend, usually one of the highest sales periods of the entire year, but with half of the supply they had last year.”

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Moving Forward Into Fall

After Labor Day weekend, the fall offers greater potential for banks and credit unions to boost their interest income.

As demand for new and used cars slows, automakers and dealerships have a chance to catch up on their supply. Your best chance to earn net interest on auto loans will most likely come in the latter part of autumn as we get closer to the holiday season. In the meantime, you can supplement your net interest with other revenue sources and seeking out nonprime auto loan borrowers looking to improve their credit and financial stability. With appropriate data analysis and risk-based pricing, banks and credit unions can begin to pry apart your ever-squeezed net interest margins.

Lenders Protection™ from Open Lending can also help you improve your ROI on your auto lending portfolio while mitigating risks that could come from the still-recovering auto market.