What Do Inventory Surges and a Growth in Prime Financing Mean for CUs?

With the continued resurgence of new vehicle inventory and availability of manufacturer incentives, the automotive finance market has undergone a considerable shift over the past few months. Following several quarters of shoppers opting for used vehicles, we’re seeing more consumers shift back into the new vehicle space, resulting in a ripple effect across the industry, including for credit unions.

According to Experian’s “State of the Automotive Finance Market Report: Q1 2024,” the percentage of new vehicle financing reached nearly 42%, up from 37.9% the previous year. That means a smaller pool of potential borrowers are exploring the used vehicle market, a focal point for many credit unions.

As a result, credit unions experienced some declines in market share across the board. For instance, credit unions’ share of the total loan market dropped to 22.9%, down from 27.4% the previous year. Similarly, their share of the new loan market reached 13.3%, down from 21.3%, and their share of the used loan market fell to 28.0%, down from 30.4%, over the same period.

Meanwhile, captives experienced the most growth in the total loan market, increasing to 23.7%, and saw their highest share of the new loan market since 2010, reaching 52.4%. On the used side, banks recaptured the lion’s share of the used loan market, increasing from 27.6% in Q1 2023 to 28.4% in Q1 2024.

While some of the dip can be attributed to a few credit unions strategically reshuffling their portfolios, monitoring the automotive finance landscape will be critical moving forward.

The Market Remains Stable

Although credit union market share declined in Q1 2024, opportunity still exists in a relatively stable automotive market.

In fact, super prime and prime consumers comprised nearly 69% of total vehicle financing, coming in at 31.4% and 37.5%, respectively. Meanwhile, the subprime market declined from 16.2% to 15.4% year-over-year.

Interestingly, the percentage of super prime and prime borrowers relying on financing for a used vehicle also increased. In Q1 2024, prime-plus borrowers represented 58.9% of the used loan market, compared to 56.6% a year ago.

In addition, the average loan amount for new and used vehicles continued a positive trend for consumers in the market for a vehicle. The average loan amount for a new vehicle declined $481 from last year, reaching $40,634. Similarly, on the used side, the average loan amount declined from $26,571 in Q1 2023 to $26,073 in Q1 2024.

While the average loan amount for new and used vehicles decreased during the first quarter of 2024, elevated interest rates caused modest increases in the average monthly payment. In fact, the average interest rate for a new vehicle grew from 6.6% to 6.7% year-over-year – bringing the average monthly payment up $3 from last year to $735 this quarter. Meanwhile, the average rate for a used vehicle increased from 11.4% last year to 11.9% this quarter – leading to a slight uptick in the average monthly payment, coming in at $523, from $521 the previous year.

As loan amounts continue to stabilize and interest rates remain high, it’s important for credit unions to analyze and leverage the most current trends and data. Understanding the status of the market gives them the opportunity to apply new strategies when helping their respective consumers.

Melinda Zabritski is Experian’s Head of Automotive Financial Insights.