As Used Car Prices Drop, What’s Next for Auto Lenders?

For consumers looking to get a used car, there’s been some good news. According to Business Insider, data from Manheim Auctions show that wholesale used vehicle prices decreased throughout May and June of 2021. The price drops were small, but it is a sign that prices are slowly starting to move away from their peak during the height of the pandemic.

Many prominent auto retailers have also begun to take notice of steady price drops. The president of Sonic Automotive, Jeff Dyke, told CNBC that he’s seen signs that the market is leveling off, with prices of used cars dropping by as much as $2,000 over the course of July.

While prices have decreased, they remain higher than pre-pandemic. There’s also still the issue of the chip shortage and its effect on new car supply, and new cars’ continued scarcity will keep used car prices up. But it’s only a matter of time before potential car buyers experience less sticker shock at the dealership.

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When car prices do eventually return to normal, banks and credit unions must adjust how they approach consumers with their auto loan programs, but a few things are likely to remain the same. Some borrowers may be at a point where their finances have returned to normal and their credit is in good shape, while others may not be so lucky. Banks and credit unions should continue looking at each borrower individually, with the help of alternative data sources and technology platforms that streamline the process and listen to each applicant’s particular situation and needs.

Cars are a necessity in many areas of the county, so auto lending will always have a place in the market. Whatever the market brings, your financial institution can be better prepared to help a variety of borrowers with Lenders Protection™ from Open Lending. The Lenders Protection™ program allows you to say “yes” to more auto loans using proprietary advanced data analytics to reach your set target ROA, while not adding significant risk to your auto loan portfolio.