As we usher in the first month of 2021 after a most atypical 2020, the forecast for new car sales and repossessions is looking a bit grim. Black Book recently released a market insight report for December 2020. There are two key indicators from their report I would like to highlight that should give us an idea of the challenges facing the auto lending industry going into 2021.
New Car Sales Are Down in Q4 2020
First, new car sales are expected to be down around 18% for 2020, compared to 2019. If you look at the graph above, notice how new car sales dropped off in November by 15%, and are expected to drop off 27% in December compared to last year. Historically, November and December are two of the strongest months for new car sales, so this is a worrying trend.
With consumer confidence being much lower than it was prior to the pandemic, people are less likely to go out and finance a vehicle for six or seven years when they don't know with certainty what their economic future will look like in 2021.
Related Reading: Auto Lending Industry: The Top 5 Things Happening Now
Repossessions Are Poised to Double in 2021
According to Black Book’s report, “About 1.9 million vehicles were repossessed by lenders and sold (mostly) through wholesale channels in 2019. Our survey of lenders and automotive recovery companies suggest that the volume of repossessed vehicles will at least double in the next six months. We expect that there will be substantial challenges at every step of the process as recovery, transportation, and disposal are not fully recovered.”
This estimate is across all lines of auto financing, so all lenders will be affected by this likely increase. Most credit unions were quick to tighten their credit standards when the COVID-19 pandemic descended on us, but they will still struggle with rising delinquencies, weaker loan demand, and squeezed margins.
There is no doubt 2020 was a turbulent year, both for lenders and borrowers. SWBC is here to help our clients navigate through the stormy weather that lies ahead.
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