Car Buying Enters New Reality

Margaret Crews Baddour bought a 2017 Honda CRV in New Orleans 13 days after Fat Tuesday to have a larger, nicer car to carry house hunters for her growing real estate practice.

Baddour spent weeks researching cars, prices and lending options. But she had thought little about the “outbreak” – not yet labeled a pandemic – when she walked into a dealership March 9.

She recalled no one there wiping down a car, saw no special precautions and heard no mention of the coronavirus. She test drove the car, negotiated a $21,800 price and financed $15,676 through TD Auto for 48 months at 3.34%.

She flipped on NPR as she was driving home from the dealership. The first news to come across her radio was that the stock market was plunging.

“I was like, ‘Oh … what have I done?’ I just put down all this money, and I have this new bill,” she said.

Since then, credit unions have had their own moments of swiftly changing outlooks. Several people interviewed said auto lending, which had been healthy through mid-March, dove afterwards as stay-at-home orders were issued in state after state.

The change in the economy was felt swiftly across the nation, including Utah, home to some of the biggest car lenders in the credit union movement, and a state where credit unions provide two out of three car loans.

Mountain America Federal Credit Union of Salt Lake City ($9.3 billion in assets, 879,651 members) is the eighth-largest auto lender among credit unions with $3.4 billion in car loans as of Dec. 31, which was up 13.1% from a year earlier and accounted for 43% of its total loans.

Mountain America continued making auto loans splendidly until mid-March when applications plummeted with stay-at-home orders. In the last week of February, borrowers submitted 3,200 applications for indirect loans, which account for about 60% of Mountain America’s volume. In the last week of March it received about 1,800 applications.

This was not a good sign at the cusp of the second quarter, usually the peak season for auto buying, Jade Beckman, Mountain America’s vice president for consumer loans, said.

Beckman said the drop-off started because consumers didn’t want to go to car dealerships when stay-at-home orders were in effect. But in April their reason seemed more about cash conservation, either because members had lost their job or feared losing it.

Chad Shane, SVP and chief lending officer at Canvas Credit Union, based near Denver, said he has also detected a shift from consumers falling out of the auto market because of health concerns to staying out of the buying process because of economic worries.

“They don’t know how long this will push us into recession, and whether they will bounce back quickly,” Shane said.

At Mountain America, Beckman forecast second-quarter loan volume will be about half that of 2019’s second quarter.

“I expect April and May to be pretty rough,” he said. “We just have to weather out this storm. Hopefully we’ll have a return to some normalcy in a few months.”

The pattern is similar for major auto lenders in Colorado and Texas.

Canvas ($2.7 billion in assets, 252,825 members) held $1.5 billion in car loans Dec. 31, 2019, up 10% from a year earlier and accounting for 64% of its total loans.

Car loans have dropped sharply after Colorado’s governor issued a statewide stay-at-home order March 26. In the first eight days of April, applications were down by about a third, and funded loan volume was half the level of the first eight days of 2019.

Shane said he expects Canvas’ car loans will be down 30% to 50% for the second and third quarters.

“The second quarter will be really rough,” he said. “As people get back to work at the end of the year, we think there will be some pent-up demand.”

Ent Credit Union of Colorado Springs, Colo. ($6.7 billion in assets, 374,386 members) held $1.8 billion in car loans as of Dec. 31, up 15.7%. In March the volume of new loans was 25% less than expected, and loans were down 75% in the first week of April.

Randolph-Brooks Federal Credit Union in San Antonio ($9.7 billion in assets, 869,934 members) started seeing a drop in auto lending after March 23 as various stay-at-home orders went into effect in Texas. By April 10, loan originations were dropping further as applications in the pipeline cleared out.

“Dealers are still seeing some traffic in their servicing departments, but overall the interest in making a vehicle purchase just isn’t there at the moment,” Heather Sullivan, SVP of consumer lending, said.

With applications down for auto loans, RBFCU has shifted some of its auto lending staff to other areas that are in higher demand, such as its mortgage department and its team supporting businesses applying for the Payment Protection Program.

The coronavirus has changed life and car buying across the country.

Baddour moved to New Orleans in 2010, just after graduating from college. She quickly soaked up the city’s quirky customs and social rituals. She and her husband bought a house in the Treme neighborhood a few years ago, which among other uses provided them more room for their considerable collection of hats, boas and other costume accessories.

At Mardi Gras, like every other year, they dressed up and took a Lyft or Uber to parades to rub shoulders with friends and strangers alike. Like many residents, they started attending parades early in the two-week season leading up to Fat Tuesday, which was Feb. 25 this year.

She recalled that the joke at the parades was that the people lined up along St. Charles Avenue might catch the coronavirus from the throws from the floats on the premise that so many of the beads and other trinkets are made in China.

“I don’t remember hearing a lot about the coronavirus until after Mardi Gras,” she said. “It was a Chinese problem. I never thought it would come here.”

In Nashville, Emelie Harris has enviable job security. The 24-year-old works as a nanny for a hospital physician’s family, caring for their two young children.

She has to think every day about hygiene to protect the children, their parents and herself. So coronavirus concerns did not deter her in early April when she decided to replace the aging car she drove through college with a 2019 Toyota RAV4.

She had been looking at cars for a year, and had honed in on the RAV4. She finally went for a test drive April 7 at Beaman Toyota, a major dealership on Broadway, a mile west of the Ryman Auditorium.

The dealership was nearly empty when she arrived about 5:30 p.m. She recalled one other customer there working out a change on a lease. Several employees were scattered through the showroom at points well distant from one another.

“The guys at the Toyota dealership were really, really happy to see someone,” she said.

About three months earlier Harris had taken a test drive of a Nissan Rogue. Following protocol, the salesman went with her for the ride. There was no mention of the coronavirus and no special precautions.

This time she took a bottle of sanitizer with her. The Beaman sales staff told her the cars were wiped down between test drives. They made a photocopy of her driver’s license, held a copy of her auto insurance card and told her to pick up the keys from the counter. She test drove the car alone.

“It was kind of weird because I was trying to figure out all the bells and whistles while enjoying a test drive,” she said. “Normally, they’ll kind of walk you through it while you’re driving.”

When she returned to work out the deal, she was taken to a finance office where papers were shuffled beneath a sheet of clear plastic erected on the desk.

Yet, she doesn’t remember anyone explicitly mentioning the coronavirus or COVID-19. “In the South, instead of saying COVID-19 we refer to it as ‘with everything going on in the world,’” she said.

Harris said she and her roommate alternate their moments of anxiety, “which is convenient because the other one can console whoever is having a meltdown.”

“This is so shocking that this is happening,” Harris said. “Everyone is living in this space of trying to find normalcy in between the panic attacks.”

In New Orleans, the first confirmed case of COVID-19 was announced March 9, the same day Baddour bought her car. On March 11, the World Health Organization declared COVID-19 a pandemic. Schools in New Orleans closed and the St. Patrick’s Day parade was canceled.

With some trepidation, Baddour drove her new car to a crawfish boil on Friday, March 13. It turned out to be her last social outing.

On Monday, March 16, Gov. John Bel Edwards ordered the city’s restaurants and bars to close, except for takeout service. On March 22, Edwards issued a statewide stay-at-home order. By early April, New Orleans has become a hot spot with a density of cases that rivaled New York City, and the stay-at-home order was extended to the end of April.

Baddour has been home with her husband and one very well-attended mutt. She has learned to sew, and is now making masks for friends. They cook. They do puzzles. They sun. And in early April she made her first $349 car payment.

Her new routine doesn’t really involve driving. As of April 13, her car had moved from its parking spot fewer than 10 times, and was still awaiting its first trip to the gas station. “I still have like half a tank.”