Auto Finance Industry - Overview
Over 107 million Americans have auto loan debt, which amounts to 43% of the total adult population in the US. While auto sales have been record high in the last decade, new auto sales are expected to decrease by 5% in 2018. The expected drop for 2020 is down to $15 million, which is a significant decrease from $17 million recorded in 2017. Key players in the auto financing market are banks 32.5%, BHPH 6.9%, captives 29.3%, credit unions 20%, and finance companies 11.3%. The average auto financing consumer is around 49 years old. The two major auto financing tech trends that have been dominating the market in the past year are more flexible financial deals, and financing for private party transactions.
Data on the industry was readily available. However, for us to understand the consumers of the auto finance industry, we had to assume that car buyers are also auto loan buyers. We back up this assumption by the fact that 80% of new car buyers use auto financing. This assumption was needed in order to provide complete demographics, as sources that provide consumers demographic on strictly auto loan buyers were behind paywalls.
When it comes to historical growth of the market size, the market grew from $0.8 trillion in 2005 to $1.2 trillion in 2016. When it comes to the average amount financed for new car purchases, that amount was $27,000 in 2008 and it grew only slightly, to $28,000 in 2015. The industry grew by 5.9% between 2012 and 2017.
More than 107 million Americans have auto loan debt, which amounts to 43% of the total adult population in the US. This is a major historical increase. In comparison, in 2012 only 80 million Americans had car loans.
While auto sales have been record high in the last decade, new auto sales are expected to decrease by 5% in 2018. The expected drop for 2020 is down to $15 million, which is a significant decrease from $17 million recorded in 2017. Bank profits decreased from $1.6 billion to $440 million in the last six months which suggests that banks are "wary of repeating the mistakes of the subprime mortgage crisis" and "have been spooked by rising delinquencies and the threat of litigation".
Forecasts state that the US auto financing market will experience a modest growth of 4% from 2018 to 2022. However, car sales are expected to decrease by between 1.5 — 5% in 2018, which will probably have a negative effect the growth of the auto financing industry.
Key players in the auto financing market are banks, credit unions, captives, BHPH, and finance companies. The market shares for the key players are as follows: banks 32.5%, BHPH 6.9%, captives 29.3%, credit unions 20%, and finance companies 11.3%.
Auto financing was split between new cars which amounted to 86.3% and used cars which amounted to 55.3%.
Major names are Ally Financing, Morgan Stanley, Capital One, Santander Consumers. Wells Fargo and JPMorgan Chase are the two biggest banks in the auto financing sector. However, both saw first-quarter their business decrease last year. The biggest player when it comes to aggressive specialists is Capital One, "which added a net $2 billion to its $50 billion car loan book over the first quarter."
Customers are mainly segmented in the auto industry by used cars consumers, new cars consumers and lease consumers, not by individuals and businesses.
The average age for new vehicle buyers increased over the past decade. Today the average age is around 49 years old. The increase in the average age of car buyers has been consistent with the demographic shifts in the US population and the vehicle purchasing rates.
Overall, lease consumers are increasing. Used cars consumers remain the same but new car consumers are decreasing. The majority of lease consumers are situated in big cities and the South Western Region. The trends are shaped by centers which have the largest population concentration. Baby Boomers are still one of the key demographics, with baby boomers who love cars currently heading to cities. Compared to Baby Boomers, Millenials have a lower rate of car ownership. This is also backed up by the fact that the average age of people who purchase new cars has increased over the last decade.
The two major auto financing tech trends that have been dominating the market in the past year are more flexible financial deals, and financing for private party transactions. More flexible financing deals are created in order to establish a financial structure that fills the gap between renting a car and leasing a car for time periods between three and five years. Many of the consumers don't need a car for the long-term time frame which comes with leasing a car, which is why flexible financing deals can help satisfy the existing demand. The second trend is financing peer-to-peer sales. This type of car sales will make up 31% of the used car market by 2020.
Auto financing companies started to install devices in cars which allows for them to remotely disable cars if the borrower doesn't keep up with their repayments on time.
Some players are pulling back from the market because there has been an increase in delinquencies and requested loan amounts, as well as the number of auto loans outstanding. Auto financing makes up the bigger proportion of overall U.S. household liabilities. The trends show that the losses are only going to get worse for auto financing companies. On top of that, banks are losing market shares to captives and finance companies.
We provided an overview of the auto financing industry based on market size, both historical and future, key players in the market, customers, and current trends.