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If you’re anything like me, now that we’re a solid quarter into 2021, the haze and fog of 2020 is finally starting to dissipate. More businesses and organizations have begun to open, and we continue to return to some sense of “normalcy” as a society. Surprisingly, the lending market has not followed the same economic trend as some of the harder hit industries. In fact, we’ve seen the housing market boom since the onset of the pandemic. Home sales shot up 21% in June 2020 and have stayed strong since, according to the National Association of Realtors.
Interestingly, the auto lending market is also seeing strong growth—with no end in sight—in 2021. I recently sat down with Stacey White, SVP Remarketing and Title Services, from PAR (Partners in Asset Recovery®) to discuss the current and future state of the auto lending market.
Karen:
Within your role at PAR, you obviously have to keep your pulse on the lending market. How do you stay abreast of the ‘happenings’ in the marketplace?
Stacey:
Well, I read…A LOT, but I also recently attended the International Automotive Remarketers Alliance (IARA) virtual conference in March. It was incredibly informative and I had the opportunity to listen to the 2021 key tech trends and outlook discussion hosted by Tom Kontos, Chief Economist for KAR Auction Services, Inc., and Jonathan Smoke, Chief Economist for Cox Automotive.
Karen:
Wow, I bet you walked away with so much information! In terms of how the auto lending market is expected to fare for the rest of the year, what did you learn?
Stacey:
Well, it appears that we’re seeing a light at the end of the COVID-19-tunnel. Jonathan Smoke spoke about retail vehicle sales and how he is seeing a pattern of solid upward movement—and not just compared to last year. As of the week of March 15, new vehicle sales were up year-over-year by 9%, and used sales were down by only 3%. Jonathan contributed the decrease in used car sales directly to tax-refund season being delayed by approximately three weeks.
However, if you compare 2021 new vehicle sales to 2019 new vehicles sales, they were flat. Jonathan said he was confident that the used market is just starting to see the spring surge on the retail side, and we're already starting to see it on the wholesale side. Jonathan predicts tax refunds and stimulus payments are going to fuel strong spring sales, and the primary obstacle the market will encounter is limited supply, given used inventory was down 13% in February.
Karen:
I know that inventory has been a massive challenge for the housing market, but I didn’t realize the same held true for the auto lending market.
Stacey:
Oh, yes, and unfortunately, this may not change anytime soon with production difficulties and supply chain issues in the new vehicle market. In the used vehicle market, we don't have that buildup of inventory that we would typically see going into the spring market. Wholesale auction inventory is estimated to be down 30% year-over-year. The strong demand environment will lead to prices reaching new records. The spring market started earlier this year, and prices have been increasing since the fourth week in January—and they're continuing to rise.
In the first half of April, the Manheim Index increased 6.81% in the first 15 days of April compared to March, bringing the mid-month Manheim Used Vehicle Value index to a 52.2% increase from April 2020.
Karen:
I have to say, I’m really surprised to hear that the auto loan market is so strong coming off the heels of one of the worst economic downturns since the Great Recession, and I imagine I’m not alone. Thank you for sharing these great insights with us today, Stacey! This has been a great conversation and I look forward to catching up with you again soon to discuss how these trends are impacting the repossession market.
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