Auto loan access declined in November after multiple months of improving conditions, according to Cox Automotive’s Dealertrack Auto Credit Availability Index.
After hitting a peak in the summer of 2022, auto loan access has been on a steady decline, with occasional but short-lived improvements throughout the year. From June through October, credit availability increased across most channels on a month-over-month basis while remaining behind the prior year’s levels. But by the start of December, availability had suddenly declined by 0.8% from October 2023, 4.2% from November 2022 and 4% from the early days of the COVID outbreak. These shifts, combined with the lowest approval rates so far in 2023, indicate that consumers are still struggling to finance their vehicles in the post-pandemic economy, although the factors contributing to these difficulties remain in flux.
Based on Cox Automotive’s analysis, greater yield spreads, lower shares of subprime consumers, shorter term lengths and higher down payments caused auto loan access to tighten in November, although the impact was most notable in the certified pre-owned vehicle market. Even so, consumers felt more confident in the car market during the month than previously, with sentiments improving 2.9% from October and 0.6% from 2022.
Earlier this year, the sudden collapse of several banks spurred fears that a crisis was underway, leading many lenders to tighten credit availability. While those anxieties have largely subsided, the lasting effects continue to frustrate many industries, including the car business, in their efforts to attract buyers through better financing options. Other challenges, such as inflation, high car prices, and burdensome interest rates, have barred increasing numbers of consumers from purchasing new or used vehicles, causing sales to dip slightly in the latter half of 2023.
While auto loan access was on the mend during the months leading up to November, the sudden decline emphasizes the fragility of the nation’s economic recovery. For auto loan access to make a significant improvement, multiple conditions, both within the car sector and without, must demonstrate stability to convince creditors to loosen their lending policies.