Incentives Shift the Balance of the Automotive Finance Market in Q2 2023

Over recent years, the automotive finance market share has demonstrated frequent shifts, and data from the second quarter of 2023 showed us this once again.

Experian’s “State of the Automotive Finance Market Report: Q2 2023” found captives now hold the majority of total vehicle financing market share, jumping to 29.05% from 22.15% in Q2 2022. Banks trailed behind at 24.84% this quarter, a decrease from 27.75% last year and credit unions went from 25.96% to 22.49% year-over-year.

Taking a deeper dive, captives continued to lead the new vehicle finance market at 58.47% in Q2 2023, from 46.80% in Q2 2022. Meanwhile, banks declined from 25.97% last year to 22.25% this quarter and credit unions dropped from 21.57% to 13.70% in the same time frame.

The good news is credit unions grabbed the majority of market share in the used financing space, coming in at 28.65% in Q2 2023 from 28.58% in Q2 2022. Banks fell behind at 26.65% this quarter, from 28.81% last year, and captives saw a slight uptick from 7.44% to 8.46% year-over-year.

It’s important to note that captives regaining total market share is likely a result of more incentives being available.

Interest Rates Impacting Loan Terms

In Q2 2023, the average loan amount for new vehicles only increased $70 year-over-year, reaching $40,657. Meanwhile, the average loan amount for used vehicles decreased from $28,607 last year to $26,863 this quarter.

However, due to rising interest rates, the average monthly payment for new vehicles increased from $672 in Q2 2022 to $729 in Q2 2023 and the average monthly payment for used vehicles saw a slight uptick, going from $519 to $528 in the same time frame.

Captives offered consumers the lowest rates for a new vehicle, coming in at 5.78%, from 4.19% in Q2 2022. Credit unions were not far behind at 6.85% this quarter, from 3.74% last year, and banks went from 5.25% to 7.87% year-over-year.

On the used side, credit unions offered an interest rate of 8.37% in Q2 2023, from 5.26% in Q2 2022. Banks followed at 10.23% this quarter, up from 7.63% last year and captives went from 7.87% to 10.32% in the same time period.

As a result of increased rates, consumers are presumably looking for ways to alleviate the total cost of the vehicle, which altered the average loan term in the second quarter of 2023.

For instance, loans up to 48 months for a new vehicle grew from 9.53% in Q2 2022 to 14.58% in Q2 2023. Additionally, the percentage of a new vehicle loan with a 49- to 60-month term increased to 17.15% this quarter from 16.71% last year, and the percentage of a new vehicle loan with a 73- to 84-month term decreased from 35.45% to 29.38% in the same time frame.

On the used side, the percentage of vehicles with a loan term up to 48 months increased to 11.31% in Q2 2023, from 10.06% in Q2 2022, while a used vehicle loan with a 49- to 60-month term increased to 18.92% this quarter, from 17.22% last year. Furthermore, the percentage of a used vehicle loan with a 61- to 72-month term slightly decreased from 42.78% to 42.17% year-over-year.

As credit unions look for more ways to gain market share, another important metric to leverage is who’s currently in the market for a vehicle.

Prime Consumers Comprise Majority of Financing

When analyzing the consumers who are currently financing a vehicle, prime borrowers accounted for a large part of total financing. In fact, prime and super prime consumers (those with a credit score between 661 and 850) comprised 67.35% of total financing in Q2 2023, an increase from 64.5% in Q2 2022, while subprime consumers (those with a credit score between 300 and 600) decreased to 15.03% this quarter, from 16.85% last year.

With more consumers continuing to actively manage their credit and moving into the prime space, it’ll be crucial for credit unions to watch this data closely as they look for ways to reach the right audience, considering they tend to focus on the prime space.

Overall, it’s important for credit unions to utilize multiple data points and stay close to the latest financing trends as they continue to find ways to gain market share and assist consumers who are in the market for a vehicle.

Melinda Zabritski is the Senior Director of Automotive Financial Solutions for Experian.