Leasing is on the rise along with incentives, while the value of used vehicles decreased in May, which is a positive sign for improving affordability.
New-vehicle lease penetration reached 24.1% in the first quarter of 2024, compared to 19.3% in the same period the year before, according to Experian.
The Manheim Used Vehicle Value Index fell 0.6% sequentially and 12.1% year over year to 197.3 in May as vehicle depreciation reached more normal levels.
While there are indications of better deals and lower prices, external costs such as vehicle insurance are still a burden for borrowers, especially impacting consumers with lower credit scores. The U.S. Bureau of Labor Statistics‘ motor vehicle insurance index rose 1.8% in April, following a 2.6% increase in March.
Affordability was a major focus at the National Automotive Financing Association’s (NAF) Non-Prime Auto Financing Summit in Texas, along with compliance and technology.
In this episode of the “Weekly Wrap,” Auto Finance News Editor Amanda Harris and Associate Editors James Van Bramer and Ashley Savage discuss recent news in leasing, affordability, and compliance, along with key takeaways from the NAF Summit for the week ending June 7.
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Transcript:
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Amanda Harris 0:32
Hello everyone and welcome to the roadmap from auto Finance. News is 1996, and nations leading newsletter and automotive lending and leasing, and it is Monday, June 10th and I’m Amanda Harris, joined by James Van Bramer and Ashley Savage.
The stairway through and what happened in auto finance for the week ending June 7th, 2024 and economic News, non farm payrolls advanced 272,000 last month, beating all projections as average hourly earnings increased .4% from April and 4.1% from a year ago. The unemployment rate, however, rose to 4% from 3.9%. The figures highlight a strong labor market that will likely heat the Fed on a cautious trajectory when it comes to monetary policy and auto finance. Venture capitalists invested $1 billion in auto fintechs through May, nearly double last year’s pace as fintech funding rebounds following a 64% decline in 2023. AI driven subprime auto lender Lendbuzz also secured $100 million in funding for a Mitsubishi UFJ Financial Group to help grow its originations, and another interesting development acts as auto finance is number of applications from consumers and the Canadian market who own homes increased 47% in the first quarter, indicating that the lenders who normally provide financing for borrowers in credit segments typically tied to homeownership have tightened bandaids. Typically, homeowners are consumers who fall into credit buckets that allow banks to offer better rates to other lender types.
But banks have stepped back from riskier loans amid high interest rates and inflationary pressures. The uptick is expected to contribute to growth in the nonprime auto finance market in Canada. Affordability also continues to be a top concern, but soft and bright spots as leasing returned and used vehicle values declined. Further, Ashley has the details there, Ashley.
Ashley Savage 2:21
Yeah. Thanks, Amanda. Last week we covered a nice move to topics across the auto industry, including the latest Manheim used vehicle data and a nod to the research and some policing. On Friday, we saw that used vehicle values fell month over month and year over year, according to the Manheim News Vehicle Value Index used vehicle sales, however, climbed 6% month over month and 12% year over year in May as we heard from Cox out of chief economist Jonathan Smoke at the NAF Non Prime Auto Summit. The decline in values marks the third straight year of decreases as prices continue to level out from pandemic highs. The data also shows us the prices fell across all major market segments 20 year over year basis with compact cars carrying the largest declines, followed by midsize cars and SUV’s.
He’s given what we know, Smoke, said. We do have room to believe that the price correction between used and new vehicles is largely over. Also last week we covered the resurgence of leasing and leasing data points from previous quarters. As we saw in the May 30th experience for board leasing, penetration continued to climb in the first quarter given the fact that inventory levels have somewhat valid. Evidences also ended up in the first quarter and played a partial role in the Tick Up Leasing which is made up 24.1% of new vehicle purchases in quarter one compared with 19.3% in Q 12023 according to the report. We also spoke with experience Melinda Zabritski about this increase in leasing and what it means for everyone involved in highlighted that the surgeon leasing offers the excuse me, the surgeon leasing lease offerings has the potential to allow consumers to find more affordable financing while also allowing manufacturers secure a higher loyalty rate. Which served as a win win.
When you look at it from that standpoint, the notion that leasing will continue to be an attractive finance option for consumers is also backed by the data that shows that the average monthly payment on a new vehicle lease is sitting there $595, while the average loan payment is near $735 on average. And in case you missed it, we do have a cup. We do have coverage on our site that provides a closer look into the queue. One leasing data and a detailed look into the staff on EV leasing specifically, I’m sure over the coming months will continue to drive through and leasing and work to layout the pros, the cons and the driving factors. But for now, that’s our latest update.
Amanda Harris 4:27
All right. And that’s the last week was a non prime auto financing conference in Texas. James, you attended the show, So what were the takeaways?
James Van Bramer 4:36
Thank you, Amanda. Well, yes, I’m quite literally bringing the heat from NAF stock, Prime Auto conference. It was nearly 100 degrees in Forth Worth last week, so there was a lot there. But of course there was also heat in the auto finance industry.
It was a great conference with tons of good insights into what’s going on in the nonprime market. So let me get you all up to speed with the latest last week, we saw that last week we reported on the leasing value we sorry we recently been reporting on the leasing value picking up steadily as ASH was talking about with that in mind.
Uh leases cost lenders more, according to Kyle Birch, president of North American operations at GM Financial. He said this during his keynote address at the non prime Auto Financing summit from a capital borrowing standpoint.
He said it is more expensive to submit a lease than it is alone. As we move forward, leasing has started to return, Birch said, noting it comes down to how manufacturers and lenders want to support payments for the consumer. So as we move forward and leasing value likely will pick up, it is something to keep in mind the rest of the industry. As for our second item from NAF last week, Cox Automotive chief economist Jonathan Smoke detailed how rising insurance costs are burdening consumers, making it difficult to keep up on auto payments. According to the latest CPI report, UH auto insurance costs are up 22.6% year over year and increased in both both of the most recent months. This is a causing a specifically a lower income borrowers who are actually experiencing who experience peak inflation in June 22 at a greater greater than the rest of the country are also experiencing inflation at about greater rate today, even as his reached up 4% uh. Jody Lambert, vice president of dealer risk management at Anderson Brothers Bank, during this discussion, said that what we experience is that sometimes that consumer will pay that car payment, but they will not pay that insurance and they’ll let it lapse. The issue there is that when that happens, it creates in a sense a bigger problem for the lender because they kind of have to cover that or track it somehow and they’re just it’s just not a pleasant situation. So that’s something to keep in mind moving forward.
Consumers in lower income brackets, of course. I’ve been dealing with this more than others, so as we see the next CPI report, it’s something that we’ll be looking out for and we’ll try to keep you all on that. Before I conclude, I wanna say thank you to everyone for hosting a great conference and stay tuned for more stories throughout the week from the event and some others that we have in the pipeline.
Amanda Harris 7:15
And perfect. Great. Thank you, James and Ashley, that about does it for today’s episode. To thank you for joining us on the roadmap and be sure to follow us on X and LinkedIn and we will see you online at autofinancenews.net and here next time.
