The state of car lending

Credit unions’ car loans increased slightly by 1.3% in 2020 after a 2.5% increase in 2019 and six years of double-digit increases from 2013 to 2018, according to NCUA.

The COVID-19 pandemic has exacerbated the slowdown that the industry began to see in the late 2010s.


  • New car loans decreased by 3.6% in 2020 due to the troubled economy.
  • Demand for new cars continues to grow as the economy recovers, but supply is not enough.
  • Table focus: Improving conditions for the economy and the car industry in 2022 will create better conditions for car lending by the credit union.

The economic downturn caused by the pandemic affected the car loan market in two ways:

1. Demand Credit fell as more than 20 million people lost their jobs, uncertainty about the economy increased and total consumer spending plummeted.

2. The supply of new vehicles on the market lag behind rising demand after addressing US concerns about a prolonged recession.

Factory closures and a lack of semiconductor chips due to global bottlenecks in the supply chain have exacerbated the problem.

The Federal Reserve reduced its target range for the Federal Reserve’s interest rate in March 2020. This reduced borrowing costs for various types of loans.

The average interest rate on new and used car loans fell by 70 basis points (bp) and 86 bp in 2020, respectively. New and used car loans fell another 30 bp and 22 bp, respectively, during the second quarter. 2021.

In September, the Federal Reserve announced that it would begin reducing its asset purchase program by the end of the year with a possible rate hike in 2022.

New car loans fell 3.6% in 2020 – not surprising given the economy was officially in a brief recession that year. Historical data from the credit union show that this decline is not uncommon during the economic downturn (“Increase in new and used auto loans”).

The supply of new vehicles has lagged behind growing demand as the US overcame concerns of a prolonged recession.

Interruption of the supply chain

The increase in vaccination rates, the opening up of the economy and the improvement in consumer spending led to a strong economic recovery in 2021. By June, the annual quarterly growth data showed that the economy had surpassed its pre-pandemic production level.

During the same period, new car loans from the credit union increased by 0.8%, reflecting growing demand. Data from the Federal Reserve also show that demand for car loans has surpassed pre-pandemic levels, according to major domestic banks reporting car loan applications from consumers.

However, while demand for new cars is growing as the economy recovers, supply is not enough. The global shortage of semiconductor chips has led to one of the lowest stock levels ever for new vehicles in US dealerships.

Click to enlarge. Increase of new and used loans.

The car-to-sales ratio —0.7 in July 2021 — is at its lowest level since data on this measurement became available in 1993. This means that dealerships’ ability to supply cars is slower than the sales. As a result, the current stock is reduced by 70% compared to pre-pandemic levels.

The rise of the delta variant in East Asian countries, which control about 90% of the semiconductor chip market, has exacerbated the situation leading to the closure of factories and ports.

Car companies such as Ford and General Motors have cut production and reported plant shutdowns due to shortages, while several US auto plants have been idle for weeks.

The National Association of Car Dealers announced that sales for the rest of the year are likely to be curtailed by continued inventory constraints.

As a result, the global automaker is projected to lose $ 210 billion by 2021, according to global consulting firm AlixPartners.

IHS Markit predicts that U.S. vehicle assemblies will fully recover from the continuing shortage of computer chips sometime in 2022, when supply meets demand.

This will limit car loan financing from the credit union in 2021 due to lower vehicle supply.

On the other hand, the lack of new vehicles increased the demand for used cars, which led to unprecedented price increases in 2021. Used car value index Manheim shows that prices are constantly rising every month from January to May.

A comparison with last year’s prices reveals profit margins of up to 50%. Rising prices eventually began to fall, but used cars, on average, were still valued at 25% higher than a year ago in September.

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