Auto credit availability, a measure of the ease with which consumers can obtain loans for car purchases, improved in March amidst a slight gain in affordability.
Cox Automotive reports that the month-over-month improvement in auto credit accessibility equated to a 1.1% increase. Although current availability remains slightly below last year’s levels, March was the second month in a row the measure has risen during a decline in new and used vehicle prices.
However, while auto credit access has been on the rise, multiple factors have prevented a more substantial improvement. Yield spreads expanded, and term lengths lengthened, offsetting progress won through higher approval rates and increases in subprime share. Different segments also saw varying degrees of credit loosening: lending for used vehicles sold by independent dealers was more restrictive in March than any other category, while certified pre-owned loans saw the most lax conditions.
Although improvements in auto credit availability, however slight, do reaffirm the gradual return of affordability seen in other corners of the market, the automotive landscape nevertheless remains hostile to consumers. The poor conditions have not stopped a surge in year-over-year sales, driven by pent-up demand long held back by high car prices and limited inventory. Naturally, Americans who have put off a vehicle purchase for several years are returning to the market just as conditions have finally started shifting toward the buyer’s favor. However, should affordability improvements come at too slow a pace, it is unlikely that this increase in demand will be sustainable in the long run. Lower vehicle prices will be increasingly crucial to maintaining a balance between profit and sales in the near future.
