A Look at Auto Industry Trends of the Future

When it comes to the car you want to buy, speed, reliability, miles per gallon, and many other metrics are a paramount choice that must be carefully considered. However, when it comes to where you buy that car, however, the answer is a bit more definitive. A positive and streamlined customer experience is paramount when it comes to the dealership that you choose. The numbers back this up as an estimated 54% of consumers claimed they would buy from dealerships with a preferred experience, even if it wasn’t the lowest price that they were offered. Furthermore, another 72% of consumers would visit dealerships more often if their buying experience was improved.

However, unlike previous decades, dealerships must compete not only with local dealerships, but across the country because of the internet. As of 2023, 7% of all vehicle buyers purchased it entirely online, and another 43% completed at least some of the vehicle buying steps online. But what other kinds of changes have the car buying process seen? Let’s examine the following auto industry trends below.

Consumer finances have seen a reallocation since 2014. Student loans have shrunk from 37.1% to 29%, which is a 21.3% decrease. In its place, auto loans and leases grew from 31.3% to 35.9%, or growth of nearly 15%. This growth in the past decade has ballooned the total outstanding balance for auto financing agreements to $1.7 trillion. In fact, 2.3% of the growth of this debt occurred in the last year alone. Alongside this, credit cards have also seen nearly 10% growth from 21.8% to 23.9%. The combination of these factors paints a bleak picture of consumer finances, which can help to explain why it may be difficult for consumers to pay back on their auto loans.

Auto delinquencies are defined as auto loans and leases with a payment that is 60 days past due or longer. Naturally, the increase in total debt has also caused the percentage of auto delinquencies to grow as well. As of November 2024, 1.5% of all auto financing agreements fall under this definition of being delinquent, which is a 4.5% year-over-year growth. However, this figure is not distributed equally across all generations. Rather, the younger the generation, the higher the percentage of delinquencies. For instance, only around .7% of Baby Boomers have a financing agreement that is considered delinquent, whereas 2.3% of all Generation Z financing agreements are considered delinquent.

Alongside this the quality of loan borrowers is trending towards a lower quality. Prime and near-prime both saw pitfalls, sitting around 2.4% and 0.5% year-over-year decreases respectively. On the other hand, subprime and deep subprime loans and leases saw a 4.8% year-over-year increase. A probable cause for the decreasing quality of auto loans may be due to the underlying itself. On average, the price of a new vehicle increased from just under $34,500 to around $48,000, which marks a 34% increase in the past 8 years. Simultaneously, the average interest rate for a new vehicle on a 60-month car loan shot up from 4.26% in 2016 to 7.57% in 2024, which is a 56% increase.

The combination of all these factors for consumers and dealerships alike has led the percentage of new car loans and leases to drop by 1.6% year over year. To cope with this, some people have turned to synthetic identities, also known as Syn ID’s. Syn ID’s are a way for customers to misrepresent who they are, likely because they would otherwise be ineligible for a car loan or be given a more adverse interest rate. Consequently, Syn ID’s have grown 59% annually dating back to 2020. It has already had massive implications, as the risk of a Syn ID in an auto loan rose from just under 5% to over 8% from 2019 to 2023.

Moreover, fraud with a Syn ID rose by 98% in 2023 alone, which resulted in around $8 billion in losses. These loans and leases also have a delinquency rate that is between 3 and 5 times higher than the average for a non-Syn ID customer. Fortunately, companies like Equifax make it easy to protect yourself against customers with a Syn ID.

With Know Your Customer (KYC) technology, you can proactively detect fraud during the shopping process. They do this by providing insights into the buying power and financial status of prospective customers before any agreement is signed. Ultimately, the internet age and current financial climate has made keeping a dealership afloat a difficult task. It’s paramount to take advantage of Equifax’s KYC technology to give yourself peace of mind and protect your business against fraud.

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