Like it or hate it, 2017 will go down as one of the oddest automotive years on record. It was a down year, stubbornly immune to the booming economy around it – yet too resilient to take the dive experts thought was coming. Incentives? Dangerous! Prices? Scary! Inventory? Out of control!
Yet we sold over 17 million new vehicles. How in the world did that happen?
In less than a month, Mother Nature solved the industry’s inventory and sales problem with two massive Category 4 hurricanes. They caused billions of dollars in damage, and in the process wrecked around a million vehicles. That created a shift away from the year’s downward spiral (caused in part by too much inventory and too many discounts) and flipped the page to a new reality of stronger demand and higher used car prices. As of November, the residual effects of Harvey and Irma are still being felt via much stronger sales than expected.
Millennial Purchase Power, Activate!
Let’s face it: if Millennials don’t already own the car market, they will soon. They have the credit, the cash, and are now buying cars in droves. In fact, according to TransUnion, consumers aged 21 – 34 are taking out new auto loans at a 21 percent higher rate than Gen X borrowers did when they were in that age range.
There’s also a difference in the way they approach getting a deal done. As digital natives, Millennials don’t like doing anything the “traditional way,” so you can mostly forget about getting them in the F&I office. The good news is that they’re helping to bring technology (think: mobile) to the dealership in a fast and furious way. They are intent on buying the car they want, at a fair price, and by arranging a loan or lease their way — on their time.
They don’t mind doing more of the legwork, which has opened the sales door to more product opportunities and a consultative approach designed to boost CSI. Dealerships that give up a little control during the finance phase of the purchase generally can make more profit in a more efficient way.
What was that about a Subprime Bubble?
According to Experian, subprime loans hit a five-year low in the third quarter of this year, making bubble talk dissipate and underlining the realities of a tightening market. As a result, they see the decline in subprime as part of an overall trend toward affordability, and a desire for lower payments. That includes an increase in prime loans and loan terms that reached an all-time high of 69 months.
It’s clear that consumers spent the latter part of 2017 thinking about monthly payments and affordability, and began to scrutinize the lending part of the deal more so than in recent memory.
2018: The March to Affordability
Next year also looks to be a “down” year: The National Automobile Dealers Association (NADA) projects a SAAR of 16.7 million. In any other decade, that is reason to celebrate, but for 2018 it’s a downward trend. Go figure.
Surely, though, 2018 will have its own surprises and unique moments that will change the auto market and adjust the results. All things being equal, however, new car transaction prices seem set to continue growing, along with incentives – an industry habit not likely to change. In a slowing sales year, we think that creates increased velocity around two trends: the search for affordability driven by a Millennial-influenced push toward tech and consumer-controlled lending solutions.
In fact, car shoppers are already searching for ways to create more affordability in how they finance vehicles. Three recent examples come to mind to prove the point: the surge in extended-term loans, a strong interest in subscription models that offer, in essence, zero-term leasing, and interest in alternative, tech-driven ways to finance.
Fintech, Coming to Your Dealership
Ah, yes – fintech. It’s such a ubiquitous term. What it really tries to define is how consumers are using technology to shop for, and get, loans that fit their personal and custom needs. Tucked inside this year’s results, and next year’s projected decline, is this emerging consumer lending behavior, something likely to shift into high gear as buyers start pressing down on that monthly payment. That will cause shoppers to want more control over lending options, and they’ll be looking to dealers first for help getting it.
Dealerships are a powerful influencer when it comes to lending solutions: car shoppers today insist on controlling their financing choices, but turn to dealerships for help to get there. As a result, dealership managers who support the ideal of facilitating financing across multiple consumer controlled platforms will be positioned for success in the near and longterm.
If 2017 is any indication, next year promises to be another fast-paced sales year full of innovative solutions. In 2018, much of that innovation will come in the search for affordable and personalized car loans.