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Alpha Warranty Marketing – December 2022
• Don’t Panic: Loan Defaults and Repossessions Are Rising, and That’s Normal‐ In today’s market, the deterioration of consumer credit, and auto loan performance, in particular, is a worrying sign for industry watchers. In the context of high inflation and with the Fed intent on slowing the economy and weakening the labor market, there are indeed clear signs of stress in the system. Continued jobless claims are increasing, up from their historic lows. Auto loan delinquencies are also continuing to rise, and auto loan defaults are growing as well. As a result, repossessions are also increasing, but they too are rising from record lows. Through any economic cycle, increases in defaults and repossessions are a normal, expected occurrence.‐ [READ MORE]• Decreasing manufacturer incentives due to high dealer profits‒ Before 2020, when dealership lots were overflowing with new-vehicle inventory, manufacturers were always quick to blink—offering bigger and better incentives to entice shoppers. Total industry incentive spend was estimated to be between $50-$60 billion per year.‒ The average incentive spend in November 2021 was $1,896 versus this November at $1,066. That’s a 43% DECREASE in incentives year over year. Many dealers have begun sounding the alarm of softening demand and the necessity for automakers to bring back better incentives. One dealer recently commented, “The sell ‘til the lot is empty party is over!”‒ But these same anxious dealers continue to post record new-car grosses in the $5,000-$6,000 range, including F&I. With grosses that strong, the OEMs are in no rush to bring back incentives—they’re waiting for dealers to blink first.‒ Why are the manufacturers feeling so confident? My sense is that their confidence comes from consumers, the very ones who continue to buy new vehicles absent any significant incentives.‒ [READ MORE]
• Wholesale Used-Vehicle Prices See Increase in First Half of December- The average used-vehicle list price through November was $27,156, down 3.7% from July 2022 and could drop further by early 2023 and 5% below 2021 prices.- Used-vehicle inventory continues to decline to 2.33 million units (about 4% higher than in 2021), 52-day supply (17% higher than in 2021), average mileage: 69,927.- Used-vehicle inventory remains relatively steady, while sales weakened[READ MORE]• CPO Sales Up Year-Over-Year‒ Despite, and partly even because of, overall economic pressures in the market, certified preowned vehicle sales are relatively robust, according to a Cox Automotive report.‒ Though November CPO sales fell 4.4% month-over-month, the results were up by more than 17,000 units year-over-year.‒ Sales are on target to finish the year at at least 2.45 million, meeting Cox’s projection, though that’s down 11% from 2021.‒ Despite, and partly even because of, overall economic pressures in the market, certified preowned vehicle sales are relatively robust, according to a Cox Automotive report.‒ Though November CPO sales fell 4.4% month-over-month, the results were up by more than 17,000 units year-over-year.‒ Sales are on target to finish the year at least 2.45 million, meeting Cox’s projection, though that’s down 11% from 2021.[READ MORE]
• F&I Tips for 2023:- Ask customer to leave a Google review. Online reviews boost a [company’s] rating as well as increasing the business’s online presence.- Certified pre-owned vehicles are becoming an important source for revenue growth. Under most CPO programs, the only system covered is the powertrain. 70% of F&I contract claims involve parts OUTSIDE the PT, which provides an opportunity for F&I managers to sell a VSC.- Help dealerships do more to use “Finance Discipline’ to respect customers’ time. It shouldn’t take all day to buy a car, so when the F&I manager has the customer, being prepared and practiced in informing them of F&I protections should be paramount.- [READ MORE]• Subprime borrowers faltering on payments‒ A recent CFPB report found auto loans originated in 2021 have a delinquency rating in the sixth quarter following their origination that is 13 percent higher than loans originated in 2018.‒ While nearly all groups are seeing an increase in delinquencies, consumers with subprime and deep subprime credit scores — those between 540 and 619 and below 540, respectively — are getting hit the worst.‒ Contrary to popular belief, rising inflation across the country is most likely not contributing to the rise in delinquencies, Litwin said.‒ While the higher costs will strain a family or individual's monthly budget, a car payment is usually not the first bill to fall behind on because of a vehicle's importance. ‒ [READ MORE]
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• Leads are down YOY in December on both Autotrader & KBB‒ Down for the month compared to November on both sites• Credit applications on Dealertrack were down week over week:‒ Unique applications on same-store basis las week were down 16% YOY with a declining trend• Service trends on Xtime relative to last year declined last week:‒ Completed appointments last week were down 4% YOY
• 21 days higher YOY and flat from Nov. 2022• New Vehicle Sales- December 2022 falls YOY to 13.9 M units, down 8% YOY- New-vehicle sales in 2022 will be the lowest since 2011 due to lower demand despite rising inventory levels.Lower demand is attributed largely to higher interest rates on loans.- Inventory levels improve in December with forecast sales improvement by 10.8% in 2023- Total inventory in Q4 2022 was 1.64M units- 53 days’ supply on average across all segmentsData from Cox AutomotiveIndustry Metrics53 days
• Used Inventory‒ 2 days higher YOY, and down 3 days from Nov. 2022• Used Sales- Total November 2022 Market Down 12% from 2021- Total used-vehicle sales in November 2022 are estimated to be near 2.7 million units, down 4.5% from November 2021.- SAAR is estimated at around 35.5 million units, down 4.8% YOYData from Cox AutomotiveIndustry Metrics52 days
• Average New Listing Price: December 2022- Total inventory: 1.64 M units, up 81% YOY- 2022 days’ supply: 53; 2021: 41; 2020: 57; 2019: 80- Avg. listing price: $46,823, up 4% YOY• Average Transaction Price (ATP) - Rose 11% YOY or $5,354 to $48,681• Inventory Levels- Non-luxury Asian brands and hybrids had lowest inventories (Kia, Toyota, Subaru, Honda, Hyundai)- Luxury brands with lowest inventories were Land Rover, Lexus, Acura, Porsche, and BMW- Stellantis & GM brands – Buick, Dodge, Ram, and Jeep – had the highest inventories- Luxury brands with highest inventories were Infiniti, Jaguar, Volvo, Lincoln, and Audi• Average Used-Vehicle Price: December 2022- Total inventory: 2.33 M units, up 4% YOY- 2022 days’ supply: 52; 2021: 38; 2020: 41; 2019: 44- Avg. listing price: $27,156 sown 2% YOY and could drop 5% below year-ago prices- Avg. mileage: 69,927Industry MetricsData from Cox AutomotiveData from Cox Automotive
• Credit Availability Index: December 2022- All-Loans Index declined 2.6% to 101.2 in August- Loan access was tighter by 0.2% YOYData from www.coxautoinc.com• Vehicle Affordability Index: December 2022- Weeks of median income to purchase the average new vehicle: 43.3 weeks, up from 42.2 weeks MOM and up from 33.8 weeks YOY• Affordability Factors- Median income rose 0.4%- Price paid for new vehicles rose 0.9%- Incentives declined to just 2.2% of avg. transaction price compared with an average of 4.1% of ATP in 2021. - Avg. Interest rate increased 40 basis points- Avg. monthly payment increased 1.8% to $762Industry Metrics
• Car Prices to Ease in 2023‒ Used-car prices are projected to continue falling in 2023 as new-vehicle inventory rises and the market cools off.‒ A J.P. Morgan report predicts that prices will drop 10% to 20% over the coming year after likely peaking this past January. New-car prices are projected to decrease 2.5% to 5%.‒ The report by the data analytics firm cites the Manheim Used Vehicle Value Index, which shows that the prices dealerships pay for models at auctions hit a high in January and fell throughout this year.‒ The report said that the average new-vehicle price in the U.S. was elevated 6.3% year-over-year in September. Average used-vehicle prices were up 42.5% that same month compared to February 2020, just before the pandemic emerged in the U.S.‒ Lower prices may be offset next year, though, by rising interest rates, which increase loan amounts, and by falling consumer confidence.See also: Used vehicle values keep trending downChange is in the mix as used vehicle values have dropped over the last consecutive months. This is welcome news to many car buyers. However, used vehicle prices remain higher than before the COVID-19 pandemic and analysts predict this could remain the case for years to come.Still, used vehicle prices now appear to be following the normal seasonal pattern, where prices peak in the spring and get lower as the year goes on.Used-vehicle auction data from ADESA U.S. Analytical Services supports this. It shows wholesale prices at dealer-only auctions declined through September 2022 for four consecutive months, since a seasonal peak in May.
8 F&I Trends to Keep an Eye On1. Digital F&I transactions are the future due to greater transparency, better attachment rates, and faster closing rates before leaving the dealership.2. Increase Transparency through enhanced websites that show the full scope of F&I products. Videos, customer education marketing, and digital brochures.3. Emphasize Economic Conditions and how spending a few more dollars up-front can save on repairs later as customers keep vehicles longer and have them services for longer lives.4. EV’s aren’t going away so TPAs need to have targeted products to cover the expanding field of EVs, hybrids, and alternative fuel vehicles.5. CPO Programs are vital to successful F&I revenue growth.6. Learn how to offer profit sharing and reap the benefits.7. Concentrate on Training agents and dealer F&I managers.8. Don’t forget the value of virtual sales and digital engagement[READ MORE] from F&I Magazine
o Results of survey of 2,000+ auto dealers, lenders, and providers• 80% of respondents said they aren’t currently using digital finance solutions.• 23% said they have not found the right solution for their needs• 24% said they haven’t found a qualified provider to implement a solution for them.• 11% cited budget reasons as to why they haven’t implemented a digital finance solution.• Of those using digital tools (20%), 82% reported using e-signature tools through a partnership• 75% of those reported using e-contracting tools through a partnerSummary: Automotive and auto finance professionals can benefit from a well-rounded, robust digital back-office ecosystem, since 54% of respondents said they are trying to focus on a reduction of errors, and 53% said they want to align with a full suite of technology being used by partners and compete with other lenders that have gone digital.[FULL ARTICLE]o EpicVIN Improves Trade-Ins with Dealer Tools• Powered by artificial intelligence and machine learning, the digital marketing toolkit helps dealers identify when potential customers are most likely to sell their used cars.[FULL ARTICLE]