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Vehicle Financing - US - July 2013

“As Americans suffer from upside down mortgage payments and from stagnating wages, there continues to be a large portion of “payment buyers” in the automotive lending sector; these are buyers who care more about their monthly payments than the net expense of the financing. These borrowers will benefit more from longer loan terms and longer lease installments.”

--Colin Bird, Automotive Analyst

Some issues addressed in this report include:

  • Millennials have less-established credit histories, need help in putting the right foot forward
  • Consumers care more about getting the car they want and how they can afford the monthly payment over any other consideration

 

As post-recession America continues to lighten its overall debt loads, automotive lending has once again begun to grow. Auto loans have increased, and now a total of $794 billion in outstanding loans exist in the marketplace. This is still below the recessionary peak, but the number is growing fast. As the vehicle financing market continues to make a recovery, more lenders are extending credit to subprime borrowers and are extending the length of loans for prime borrowers, which is increasing payment affordability. However, many consumers have not yet fully recovered from the recession and retain a cautious approach to borrowing.

This report includes the exploration of a range of consumer issues including:

  • In the vehicle purchase decision-making process, are consumers considering promotional interest rates and monthly payment?
  • How are Millennials coping with their high levels of educational debt, and is it affecting their willingness to take on vehicle debt?
  • How do consumers respond to 0% APR loan incentives compared to other types of offers?
  • Are borrowers interested in longer term loans – longer than 72 months – and are they more interested in deferred payment or vehicle repurchasing options?

This report explores consumer vehicle financing in the U.S. For the purposes of this report, vehicle financing refers to borrowing for a personal use vehicle from retail banks, credit unions, captive lenders, buy here pay here (BHPH) car dealerships, and through “second chance” nonbank financial lenders.

The report also explores those who finance through peer-to-peer lending and the reasons for this. Also included is insight into the external and internal factors affecting consumers’ car-financing options and trends and what they mean for future sales, promotional campaigns, and industry innovations.

 

 

Liqueurs - UK - January 2012

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Table of contents

  1. Scope and Themes

    • What you need to know
      • Definition
        • Data sources
          • Sales data
            • Consumer survey data
              • Abbreviations and terms
                • Abbreviations
                  • Terms
                  • Executive Summary

                      • The market
                        • Auto debt stands near $800 billion – growing, but still below peak.
                          • Figure 1: Auto loans, total outstanding debt, 2003-13
                        • Market factors
                          • As credit loosens, subprime lending is on the mend
                            • Figure 2: Subprime lending growth, 2008-13
                          • Demand for leasing increases as residuals strengthen
                            • Figure 3: New lease share of new vehicle financing, 2009-13
                          • Increasing educational debt could impact Millennials and their ability to obtain vehicle financing
                            • Figure 4: Student loans, total outstanding debt, 2003-13
                          • Retail channels
                            • Retail banks lead new and used financing; captive lenders dominate leasing
                              • Figure 5: Automotive loan (excluding leasing) market share, Q1 2013
                            • Key players
                              • Top 20 lenders comprise more than 50% of the vehicle financing market
                                • Figure 6: Top 10 lenders, by total retail automotive loan market share, Q1 2013
                              • The consumer
                                • 71% of adults have a prime credit score
                                  • Figure 7: VantageScore groups, October 2011-November 2012
                                • More than 1 in 10 pay 0% APR interest on their vehicle loan
                                  • Figure 8: Interest rates (APR) paid on auto loans, March 2013
                                • Most car owners pay with a combination of cash and financing
                                  • Figure 9: Household vehicle ownership, by payment method, March 2013
                                • Consumers figure out what car … then figure out how to afford it
                                  • Figure 10: Attitudes toward buying and financing vehicles, March 2013
                                • Most potential borrowers interested in 0% APR incentives
                                  • Figure 11: Loan and leasing incentives and features of most interest, March 2013
                                • What we think
                                • Issues and Insights

                                    • Millennials have less-established credit histories, need help in putting the right foot forward
                                      • The issues
                                        • The implications
                                          • Consumers care more about getting the car they want and how they can afford the monthly payment over any other consideration
                                            • The issues
                                              • The implications
                                              • Trend Applications

                                                  • Trend: Nouveau Poor
                                                      • Figure 12: Loan and leasing incentives and features of most interest, by household income, March 2013
                                                    • Trend: Why Buy
                                                      • Figure 13: New lease share of new vehicle financing, 2009-13
                                                    • Mintel Futures: Who Needs Humans?
                                                    • Market Drivers

                                                      • Key points
                                                        • Access to credit vitally important to vehicle financing
                                                          • Figure 14: Prime and subprime share of auto loans, 2008-13
                                                          • Figure 15: Average credit score of new vs. used car buyers, 2008-13
                                                          • Figure 16: Average new and used vehicle financing term, 2013
                                                        • Car sales positively impact vehicle financing market
                                                          • Figure 17: U.S. unit sales of new vs. used vehicles, 2007-12
                                                        • Aging U.S. car parc provides opportunity for financing
                                                          • Figure 18: Average age of cars, light trucks, and total light vehicles, 1995-2011
                                                        • Used vehicle sale price help drive leasing market
                                                          • Figure 19: New lease share of new vehicle financing, 2009-13
                                                        • Increases in disposable income positively impact vehicle financing
                                                          • Figure 20: Disposable personal income, Jan. 1, 2000-Dec. 1, 2012
                                                        • Willingness to take on new debt dependent on consumer confidence
                                                          • Figure 21: University of Michigan Consumer Sentiment, 2007-13
                                                        • Declining existing consumer debt loads to positively impact auto lending
                                                          • Figure 22: Total outstanding consumer debt vs. automotive debt, 2003-13
                                                        • Governmental fiscal and monetary policies directly impact consumer lending
                                                        • Retail Channels

                                                          • Key points
                                                            • Market background
                                                              • Figure 23: Automotive loan (excluding leasing) market share, by channel, Q1 2013
                                                              • Figure 24: Auto financing, by loans vs. leases, 2012-13
                                                            • Retail banks
                                                              • Figure 25: Retail bank risk distribution on auto loan originations, Q1 2013
                                                            • Captive lenders
                                                              • Figure 26: Captive lender risk distribution on auto loan originations, Q1 2013
                                                            • Credit unions
                                                                • Figure 27: Credit union risk distribution on auto loan originations, Q1 2013
                                                              • Nonprime lenders
                                                                • Figure 28: Nonprime lenders risk distribution on auto loan originations, Q1 2013
                                                              • Buy here pay here (BHPH) car dealers
                                                                • Figure 29: BHPH risk distribution on auto loan originations Q1 2013
                                                            • Leading Companies

                                                              • Key points
                                                                • Top 50% of the vehicle financing market shared by 20 lenders
                                                                  • Figure 30: Top 20 lenders, by total retail automotive loan market share, Q1 2013
                                                                • Ally Bank
                                                                  • Toyota Financial Services
                                                                    • Wells Fargo Dealers Services
                                                                      • Chase Auto Finance
                                                                        • Ford Motor Credit Company
                                                                          • Honda Finance Services
                                                                            • Nissan Motor Acceptance Corporation
                                                                            • Innovations and Innovators

                                                                              • Tesla Motors creates repurchasing program for its electric sports car
                                                                                  • Figure 31: Tesla Motors “true cost of ownership,” June 2013
                                                                                • AutoUSA allows prospects to search inventory by monthly payment
                                                                                  • Figure 32: AutoUSA Payment Pro, May, 2013
                                                                                • Mercedes-Benz Financial Services now allows customers to make payments using in-vehicle multimedia systems
                                                                                  • Figure 33: MBFS app for mbrace2, May, 2013
                                                                              • Marketing Strategies

                                                                                • Strategy: Focus on “savings” by buying a new vehicle
                                                                                  • Figure 34: Rogers Auto Group, “upgrade” email June 2013
                                                                                • Strategy: Promoting exclusivity through “private cash”
                                                                                  • Figure 35: Ford Acquisition Mailing, “four vehicles with fuel economy that can’t be beat” March 2013
                                                                                • Strategy: Incentives that cater to a target demographic
                                                                                  • Figure 36: Toyota Acquisition Mailing, “Milwaukee tools with a new Tundra,” July 2012
                                                                                • Strategy: Combine a sweepstakes with financing offer
                                                                                  • Figure 37: Harms Auto Dealership Acquisition Mailing, “crack the vault and win,” March 2013
                                                                                • Strategy: Emphasize complimentary maintenance, above Blue Book value on trade-ins
                                                                                  • Figure 38: Lee Toyota Cross Selling Mailing, “exclusive buy back offer,” Dec. 2012
                                                                                • Strategy: Free gas payments accompany new vehicle purchase
                                                                                  • Figure 39: Jenkins cross selling mailing, “$250 complimentary gas,” May 2013
                                                                              • Profile of the American Car Buyer

                                                                                • Key points
                                                                                  • Spend and financing
                                                                                    • 71% of adults have a prime credit score
                                                                                      • Credit improves with age
                                                                                        • Figure 40: VantageScore groups, by age, October 2011-November 2012
                                                                                      • Those with better credit buy more expensive vehicles
                                                                                        • Figure 41: Amount spent on latest vehicle purchase, by VantageScore groups, October 2011-November 2012
                                                                                      • Midwest residents spend least on vehicle purchase
                                                                                        • Figure 42: Amount spent on latest vehicle purchase, by region, October 2011-November 2012
                                                                                      • Average vehicle loan: 50 months to term
                                                                                        • Figure 43: Length of auto financing, by most recently acquired new/used vehicle, October 2011-November 2012
                                                                                      • Interest rates (APR) paid by borrowers
                                                                                        • More than 1 in 10 pay 0% APR interest on their vehicle loan
                                                                                          • Figure 44: Interest rates (APR) paid on auto loans, March 2013
                                                                                        • Higher earners pay less interest on their auto loans
                                                                                          • Figure 45: Interest rates (APR) paid on auto loans, by household income, March 2013
                                                                                        • Millennials pay more in interest on auto loans, but some still take advantage of low-interest deals
                                                                                          • Figure 46: Interest rates (APR) paid on auto loans, by generations, March 2013
                                                                                        • New car owners pay less interest on auto loan
                                                                                          • Figure 47: Interest rates (APR) paid on auto loans, by vehicle ownership, by purchased new, used, CPO, March 2013
                                                                                        • Numbers and types of cars owned
                                                                                          • 62% of households own more than one car
                                                                                            • Figure 48: Number of cars owned per household, by household income, March 2013
                                                                                          • 80% of married households own two cars
                                                                                            • Figure 49: Number of cars owned per household, by marital/relationship status, March 2013
                                                                                          • No large differences in number of vehicles owned by generation
                                                                                            • Figure 50: Number of cars owned per household, by generations, March 2013
                                                                                          • New, used, or CPO?
                                                                                            • More than half of respondents own at least one new car; use new car as primary vehicle
                                                                                              • Figure 51: Vehicle ownership, purchased new, used, or CPO, by primary, secondary, or tertiary vehicle, March 2013
                                                                                            • Over half of households have a car they bought new
                                                                                              • Figure 52: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by household income, March 2013
                                                                                            • Households in the Northeast more likely to own new cars
                                                                                              • Figure 53: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by region, March 2013
                                                                                            • Millennials the most likely to own certified preowned vehicles
                                                                                              • Figure 54: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by generations, March 2013
                                                                                          • Household Method of Paying for Vehicle

                                                                                            • Key points
                                                                                              • Most car owners utilize combination of cash and financing when purchasing
                                                                                                • Figure 55: Method of paying for vehicle, March 2013
                                                                                              • Two-thirds of owners financed vehicle; wealthier households more likely to finance
                                                                                                • Figure 56: Method of paying for vehicle; combined primary and nonprimary vehicles, by household income, March 2013
                                                                                              • Millennials slightly more likely to utilize nonprime lenders and BHPH financing
                                                                                                • Figure 57: Method of paying for vehicle; combined primary and nonprimary vehicles, by generations, March 2013
                                                                                            • Household Vehicle Ownership, by Auto Loan Product

                                                                                              • Key points
                                                                                                • Most borrowers opt for simple-interest auto loans
                                                                                                  • Figure 58: Loan type; by primary and nonprimary vehicles, March 2013
                                                                                                • Type of financing product used stable across most income groups
                                                                                                  • Figure 59: Loan type; combined primary and nonprimary vehicles, by household income, March 2013
                                                                                                • Millennials more likely to use BHPH financing
                                                                                                  • Figure 60: Loan type; combined primary and nonprimary vehicles, by generations, March 2013
                                                                                              • Loan and Leasing Incentives and Features of Most Interest

                                                                                                • Key points
                                                                                                  • Most potential borrowers interested in 0% APR incentives
                                                                                                    • Figure 61: Loan and leasing incentives and features of most interest, March 2013
                                                                                                  • Appeal to the less wealthy with flexibility in loan payments
                                                                                                    • Figure 62: Loan and leasing incentives and features of most interest, by household income, March 2013
                                                                                                  • Reach out to Millennials with deferment and repurchasing incentives
                                                                                                    • Figure 63: Loan and leasing incentives and features of most interest, by generations, March 2013
                                                                                                  • Certified preowned car owners more interested in financial incentives than new car or used car owners
                                                                                                    • Figure 64: Loan and leasing incentives and features of most interest, by vehicle ownership, by purchased new, used, CPO, March 2013
                                                                                                  • Those seeking “forgiveness” perks in auto loan are likely to be paying higher interest rates on their existing loans
                                                                                                    • Figure 65: Interest rates (APR) paid on auto loans, by loan and leasing incentives and features of most interest, March 2013
                                                                                                    • Figure 66: Interest rates (APR) paid on auto loans, by loan and leasing incentives and features of most interest, March 2013 (continued)
                                                                                                • Attitudes toward Buying and Financing Vehicles

                                                                                                  • Key points
                                                                                                    • Many households figure out the car they want… then figure out how they can afford it
                                                                                                      • Figure 67: Attitudes toward buying and financing vehicles, March 2013
                                                                                                    • Households earning $50K-74.9K comparatively more interested in 72+ month loans
                                                                                                      • Figure 68: Attitudes toward buying and financing vehicles, by household income, March 2013
                                                                                                    • Millennials more likely to consider auto loan/lease an exercise in credit building
                                                                                                      • Figure 69: Attitudes toward buying and financing vehicles, by generations, March 2013
                                                                                                    • Certified preowned vehicles more interested in long-term loans and in credit building
                                                                                                      • Figure 70: Attitudes toward buying and financing vehicles, by vehicle ownership, by purchased new, used, CPO, March 2013
                                                                                                  • Race and Hispanic Origin

                                                                                                    • Key points
                                                                                                      • Non-Hispanic whites own more vehicles than other race and ethnic groups
                                                                                                        • Figure 71: Number of cars owned per household, by race/Hispanic origin, March 2013
                                                                                                      • White, Asian, and Hispanic households more likely to own a new vehicle
                                                                                                        • Figure 72: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by race/Hispanic origin, March 2013
                                                                                                      • White and Asian respondents have better credit ratings than Hispanics or blacks
                                                                                                        • Figure 73: VantageScore groups, by race/Hispanic origin, October 2011-November 2012
                                                                                                      • 1 in 10 Hispanic and black respondents pay 0% APR interest
                                                                                                        • Figure 74: Interest rates (APR) paid on auto loans, by race/Hispanic origin, March 2013
                                                                                                      • Hispanic households more likely to utilize captive lenders than non-Hispanic households
                                                                                                        • Figure 75: Method of paying for vehicle; combined primary and nonprimary vehicles, by race/Hispanic origin, March 2013
                                                                                                      • Blacks and Hispanics more interested in “forgiveness” loan perks
                                                                                                        • Figure 76: Loan and leasing incentives and features of most interest, by race/Hispanic origin, March 2013
                                                                                                      • Black and Hispanic households diverge on purchasing behavior
                                                                                                        • Figure 77: Attitudes toward buying and financing vehicles, by race/Hispanic origin, March 2013
                                                                                                    • Appendix – Consumer Tables

                                                                                                      • Profile of the American car buyer
                                                                                                        • Length of auto financing
                                                                                                          • Figure 78: Length of auto financing, by region, October 2011-November 2012
                                                                                                          • Figure 79: Length of auto financing, by age, October 2011-November 2012
                                                                                                          • Figure 80: Length of auto financing, by VantageScore groups, October 2011-November 2012
                                                                                                          • Figure 81: Age of vehicle, by method of payment, April 2012-November 2012
                                                                                                          • Figure 82: Age of vehicle, by method of payment, April 2012-November 2012 (continued)
                                                                                                        • Method of paying for vehicle
                                                                                                          • Figure 83: Method of paying for vehicle, by model year, April 2012-November 2012
                                                                                                          • Figure 84: Institution where loan was issued by general financial attitudinal statements, April 2012-November 2012
                                                                                                        • Total amount spent on the purchase or lease of the vehicle
                                                                                                          • Figure 85: Amount spent on latest vehicle purchase, by age, October 2011-November 2012
                                                                                                        • VantageScores
                                                                                                          • Figure 86: VantageScore groups, by household income, October 2011-November 2012
                                                                                                          • Figure 87: VantageScore groups, by region, October 2011-November 2012
                                                                                                        • Interest rates (APR) paid on auto loans
                                                                                                          • Figure 88: Interest rates (APR) paid on auto loans, by gender, March 2013
                                                                                                          • Figure 89: Interest rates (APR) paid on auto loans, by presence of children in household, March 2013
                                                                                                        • Numbers and types of cars owned
                                                                                                          • Figure 90: Number of cars owned per household, by presence of children in household, March 2013
                                                                                                        • New, used, or CPO?
                                                                                                          • Figure 91: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by marital/relationship status, March 2013
                                                                                                          • Figure 92: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by household size, March 2013
                                                                                                          • Figure 93: Vehicle ownership, by purchased new, used, CPO; for combined primary and nonprimary vehicles in households, by presence of children in household, March 2013
                                                                                                          • Figure 94: Vehicle ownership, by purchased new, used, CPO; for primary vehicle, by gender and age, March 2013
                                                                                                          • Figure 95: Vehicle ownership, by purchased new, used, CPO; for primary vehicle, by household income, March 2013
                                                                                                          • Figure 96: Vehicle ownership, by purchased new, used, CPO; for primary vehicle, by generations, March 2013
                                                                                                        • Method of paying for vehicle
                                                                                                          • Figure 97: Method of paying for vehicle; combined primary and nonprimary vehicles, by presence of children in household, March 2013
                                                                                                          • Figure 98: Method of paying for vehicle; combined primary and nonprimary vehicles, by region, March 2013
                                                                                                          • Figure 99: Method of paying for vehicle; combined primary and nonprimary vehicles, by age, March 2013
                                                                                                          • Figure 100: Method of paying for vehicle; primary vehicle, by gender and age, March 2013
                                                                                                          • Figure 101: Method of paying for vehicle; primary vehicle, by household income, March 2013
                                                                                                          • Figure 102: Method of paying for vehicle; primary vehicle, by generations, March 2013
                                                                                                          • Figure 103: Method of paying for vehicle, by household vehicle ownership, by loan type, March 2013
                                                                                                          • Figure 104: Method of paying for vehicle, by household vehicle ownership, by loan type, March 2013 (continued)
                                                                                                        • Auto loan product used
                                                                                                          • Figure 105: Loan type; combined primary and nonprimary vehicles, by gender, March 2013
                                                                                                          • Figure 106: Loan type; combined primary and nonprimary vehicles, by marital/relationship status, March 2013
                                                                                                          • Figure 107: Loan type; combined primary and nonprimary vehicles, by vehicle ownership, by purchased new, used, CPO, March 2013
                                                                                                        • Loan and leasing incentives and features of most interest
                                                                                                          • Figure 108: Loan and leasing incentives and features of most interest, by attitudes toward buying and financing vehicles, March 2013
                                                                                                          • Figure 109: Loan and leasing incentives and features of most interest, by attitudes toward buying and financing vehicles, March 2013
                                                                                                        • Attitudes toward buying and financing vehicles
                                                                                                          • Figure 110: Attitudes toward buying and financing vehicles, by gender, March 2013
                                                                                                        • Race and Hispanic Origin
                                                                                                          • Figure 111: Length of auto financing, by race/Hispanic origin, October 2011-November 2012
                                                                                                          • Figure 112: Amount spent on latest vehicle purchase, by race/Hispanic origin, October 2011-November 2012
                                                                                                          • Figure 113: Method of paying for vehicle; primary vehicle, by race/Hispanic origin, March 2013
                                                                                                      • Appendix – Trade Associations

                                                                                                        Companies Covered

                                                                                                        • Ally Financial Inc.
                                                                                                        • American Honda Motor Co., Inc.
                                                                                                        • Automotive News (Crain Custom Publishing)
                                                                                                        • Bank of America Corporation
                                                                                                        • BMW of North America, LLC
                                                                                                        • Capital One Financial Corporation
                                                                                                        • Daimler AG
                                                                                                        • Experian
                                                                                                        • Ford Motor Company (USA)
                                                                                                        • General Motors Corporation
                                                                                                        • Hyundai Motor America
                                                                                                        • Jaguar Cars North America
                                                                                                        • Land Rover North America, Inc.
                                                                                                        • Lincoln Mercury
                                                                                                        • Mazda North American Operations
                                                                                                        • Mitsubishi Motors North America, Inc.
                                                                                                        • Navy Federal Credit Union
                                                                                                        • Nissan Motor Co., Ltd.
                                                                                                        • Subaru of America, Inc.
                                                                                                        • SunTrust Banks Inc.
                                                                                                        • Toyota Motor Corporation USA
                                                                                                        • Wells Fargo & Company

                                                                                                        Vehicle Financing - US - July 2013

                                                                                                        £3,174.67 (Excl.Tax)