The Auto Loan Crisis of 2024

The pandemic has changed how consumers buy products, services, and just about everything under the sun. Just about every industry has been affected, from manufacturing all the way to membership businesses like gyms, salons, and things of the sort. However, there’s a new pandemic on the verge of changing the economic climate for the next few years to come.

We have just entered the GREAT Auto Loan Crisis of 2024.

Washington DC, a place known for its contrasting lifestyles. You have one side that is abundant, wealthy, and generally better off and those which are far less well off, and it seems to be split dead down the center. There is quite literally no better example of two different lifestyles in one place – Washington DC is unlike any other in the nation. Yet, for some reason we have seen a dramatic spike in missed payments, and general defaults, on auto loans throughout the state.

In one incredibly daunting statistic, provided by experian themselves, nearly 23% of all that reside within DC are now one payment late on their auto loan. About 14% are more than 60 days late on their auto loan, and roughly 11% are 90 days late.

What we’re seeing is a dramatic spike in late payments, repossessions, and general defaults on auto loans across the nation. This has created more inventory for independent dealerships, but has yet to affect auction prices, black book values, MMR, or anything related to dealer pricing on used vehicles. Knowing well how the automotive industry may indicate economic change, it’s no surprise that lenders are beginning to tighten up their requirements, and interest rates continue to climb well above what is affordable for the average consumer. With the tightening of lending continuing to progress, this may create a lack of buyers for dealerships.

Consumers are beginning to steer clear of large purchases, and generally speaking the market is in a correctional phase. So it is the dealers job right now to adjust with these trying times, continue to push forward, and learn from the mistakes of 2008.

So what happens now?

It’s all up to interpretation and experience. There will be many dealerships who cut back on marketing, cut back on employees, reduce their inventory size, and accept less liability. However, this is not a solution for these times. When the economy goes through rough transitions like the one we’re experiencing right now, this creates opportunities for people who are willing to push through, and can accept the challenge of continued growth even in a downed economy. So it is your decision as a Dealership, whether franchise or Independent, to accept the burden of growth in this economic climate.

This will separate many dealerships, and may even result in the collapse of many family owned stores. However, these trying times will certainly separate the winners from the losers.

Where can dealers go from here?

The best thing a dealership can do in a downed economy is continue to invest in their marketing, employees, and ensuring that the cars are bought with profit and scalability in mind. I think the last statement in the previous sentence is one of the most important things a dealership can do, and that is buying cars at the right price. Dealerships have gotten far too comfortable and how much money they put into their vehicles, with gross being as high as it’s been. This is a bad habit to get into, and could be the end for many dealerships in the near future.

The best thing dealerships could do right now is to break bad habits, when it relates to buying overpriced vehicles, and not to tighten on their expenses. It’s usually best to lean into trying times like these, whether you are a dealership owner, or you’re in the lending space.

How can Dealerships lean into these times?

As weird as it may sound, marketing is the answer. The idea is to get in front of the right customers, who have the correct intent on buying, and of course the income, job time, and money down to support that. Of course good credit customers would be the most ideal to market to in these times, but it is very unrealistic in this downed economy.

A majority of consumers these days are considered to be subprime or non-prime credit borrowers. When there are more bad credit borrowers than there are good credit borrowers, this requires dealerships to adapt with the times. Whether that’s including a new portfolio of lenders, who have the capability to loan money to subprime or non-prime borrowers, or even delving deep into buy here pay here borrowing as a dealer.

When will Dealerships see a recovery?

Although the news sounds quite bleak, it’s not likely to last as long as the recession did. Auto news journalists already speculate that we will see a recovery in inventory, prices, interest rates, and all things of the sort by 2025. However, without a crystal ball there is not one single prediction that could be accurate. As there are many variables to consider when discussing the auto loan crisis, and how long it may last.

As a marketing company who specializes in generating subprime auto leads for car dealers, we do see a top level to things. And with our view, things are going to get a bit difficult for dealerships that aren’t accustomed to working with these customers, but there’s many things that dealerships can do to adapt with these times. Whether that’s changing inventory, including a new portfolio of lenders, or marketing more effectively. 

Whatever the case may be, dealers have learned to adapt with almost any worldly issue, and this just seems to be another one of them.

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