Mar 21, 2023
Historically, car sales have followed a predictable annual trajectory. The end and beginning of the year typically see slower car purchases, while the spring and end of summer bring more people to lots and dealerships. But with demand still far outpacing supply, these traditional peaks and troughs aren’t guaranteed, making it difficult for lenders to prepare for influxes and stagnation.
Given the unpredictability of the current market, it’s critical — and possible — for lenders to remain resilient and agile, ready to pivot and respond to loan volume changes.
Its global nature makes the automotive industry especially vulnerable to political, economic and environmental factors. We’re still seeing the impacts of the pandemic play out across the auto industry, with sales of new cars and trucks falling to their lowest level in a decade last year.
The cause of record-low sales over the past several years was due to the fact that automakers couldn’t produce enough vehicles for consumers. And while supply chain issues are beginning to right themselves, experts expect sales to remain soft because of shrinking demand, with many people priced out amid rising interest rates.
Throughout history, some of the most notable peaks and troughs of auto sales have aligned with external factors. In 2016, a record number (17.9 million) of cars and trucks were sold in the U.S. That same year, gas prices hit their lowest in over a decade, in addition to low unemployment and interest rates.
In 2009, we saw the lowest auto sales in 27 years, with just over 10.5 million cars and trucks sold. This number correlates with the economic turmoil experienced around the world. This was the same year the U.S. government bailed out Chrysler and GM, with the government owning 61% of GM at one point.
Flash forward to today, and automakers continue to be hampered by forces beyond their control. First, in 2020, when factories were forced to close, and then in 2021, when they had to limit production because of the chip shortage.
Even when you look at years of low auto sales, you can still make a case for seasonal spikes and dips. With warmer weather and tax refunds, March through the end of May is still considered the “busy season” for car sales. Sales tend to stall in the thick of summer but rebound significantly after Labor Day and through November. This autumn upswing is due to manufacturers introducing new models for the year. Auto sales then tend to drop dramatically in January.
So how can lenders take historical data and trends and inform their strategy for 2023? Firstly, consider the external factors impacting borrowers’ decisions when purchasing a car. Inflation is the primary barrier to car ownership right now, with people having to consider the cost of every aspect of car ownership increasing — from maintenance fees to gas prices. Secondly, don’t assume traditional busy seasons will take a hiatus.
While demand may be softening, it still exists. And as dealerships see their inventories replenish, they’ll be offering more deals and taking advantage of holidays that bookend the summer months (Memorial Day and Labor Day).
Tax refunds will also continue to drive people to lots this spring. As of Feb. 3, the IRS had already issued about 8 million refunds, nearly double the amount issued during the same time in 2022. And while projections show the average refund amount will be smaller than last year, the number of returns received and processed is, thus far, exceeding what we saw in 2022.
By working with an experienced partner like Open Lending, you can better position your team and operations to ride the waves of demand. Solutions like the Lenders Protection™ program empower lenders to generate more to a broader pool of borrowers without increasing risk. So even during relatively low auto sales, lenders can create more loans from existing application flow through expanded underwriting.
What’s more, as we enter busy car buying season, Lenders Protection can streamline and expedite the loan-generation process. Our fully automated technology delivers the lowest rate that will generate your target net ROA in under five seconds.
The auto industry is no stranger to highs and lows. With a trusted partner and advanced technology, you can feel confident in providing your customers with the best service and products while mitigating unnecessary risk. What can our Lenders Protection program do for you? Check out our Opportunity Calculator to see the growth you can expect.
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