Auto financing became easier to access in June as lenders began to loosen restrictions placed after the sudden collapse of several banks.
On July 10, Cox Automotive reported a slight increase of 0.8% on the company’s Dealertrack Auto Credit Availability Index, indicating that credit access improved. While the movement was only slight, the June gain arrives after the index’s worst-performing month since February 2021, during which loan availability declined 0.4%. The reversal was supported by narrower yield spreads, longer auto financing terms and fewer down payments, although several factors, such as lower approval rates, prevented a significant recovery. The change indicates that lending activity is beginning to stabilize in the aftermath of several early-year bank failures.
Still, credit access remains 7.1% more restrictive than in June 2022. Auto financing ultimately remains difficult for car buyers to navigate, posing questions about the sustainability of high prices in the new vehicle market. While demand remained high during and following the COVID pandemic, the combined pressures of interest rate hikes, rising inflation, limited loan options and low affordability threaten to limit dealership and OEM profits in the latter half of the year, should they remain unaddressed.
For now, however, sales have shown little sign of slowing down, indicating that consumers are still largely optimistic about their financial futures. Cox Automotive notes that measures of consumer confidence improved 7% last month, pushing the score up 11.5% from June 2022. Even if economic headwinds become more turbulent in the remaining two quarters of 2023, so long as dealers remain committed to helping their clients through the auto financing process, the industry should be well protected from shifts in demand.
