Vehicle financing remained an obstacle for many consumers in January, during which auto lenders displayed more caution and auto loan access declined.
According to Cox Automotive’s Dealertrack Auto Credit Total Loan Index, January’s challenges in vehicle financing reversed accessibility improvements achieved in mid to late 2023. The index score declined to 93.0 last month, a 1% loss from December and down 3% from January 2023. This score is the worst seen since August 2020, during the height of the COVID pandemic.
The only shift in vehicle financing conditions to benefit consumers was an increase in negative equity share. Other factors worsened or remained unchanged from the month before. Cox Automotive notes that yield spreads expanded as term lengths, approval rates, and the number of subprime buyers declined. These shifts made it more difficult to obtain an auto loan in January, especially for new vehicles. Down payment amounts were at a similar level to December’s but still represented an all-time high.
These shifts represent the car market’s ongoing instability in the wake of COVID. While the automotive industry is fairing better than anyone could have expected at the start of the pandemic, many consumers are not only struggling to navigate the high costs of new vehicles but are also facing one of the most unfriendly vehicle financing landscapes on record.
Hoping to wait out these challenges, customers, especially those in the subprime category, are holding onto their vehicles for longer, meaning that dealers are potentially losing thousands of sales. The longer these trends continue, the more unsustainable they become, meaning that the industry has a limited amount of time to make actionable changes that will protect sales and revenue.