Experian Report Underscores Dealers' Need for Credit Union Partnerships

As the chip shortage continues to wreak havoc on new-car inventories, more buyers turn to used cars, according to Experian's State of the Automotive Finance Market Report: Q2 2022.

The report shows almost 62% of all vehicle financing was for used vehicles, up from just over 58% in Q2 2021. That surge has led to a jump in credit unions’ market share. The increase, which Experian calls "significant," saw numbers reach about 26% in Q1 2022, up from about 18% in Q1 2021, coming in second only to banks (just under 28%) and surpassing captive lenders (more than 23%).

"A lot of the increase for credit unions is because, from what I'm seeing so far, credit unions haven't raised their rates," Melinda Zabritski, Experian's senior director of automotive financial solutions, tells Wards. "But I think there's also a balance on the dealer side between maintaining their business and revenue opportunities (while) also making sure that the consumer is well served with loan amounts“ and competitive interest rates.

As we previously reported, experts at TransUnion recommend dealers' chief financial officers consider partnering with credit unions to offer their customers the lowest possible financing.

Experian reports the shift to used vehicles was present across all credit tiers, though near-prime saw the most significant increase, going from about 72% in Q2 2021 to just under 78% in Q2 2022. For subprime consumers, the percentage of used-vehicle loans grew from about 86% in Q2 2021 to about 89% in Q2 2022, while prime consumers saw growth from just over 61% to almost 64% in the same time frame.

The shift to used cars comes amid rising average vehicle loan amounts and monthly payments for both new and used vehicles. The average new-vehicle loan amount increased from about 13% year-over-year to $40,290 in Q2 2022, with a monthly payment of $667 compared with $582 in Q2 2021. Average used-vehicle loan amounts saw a sharper increase of almost 19% year-over-year, clocking in at $28,534, with an average monthly payment of $515 from $440 in Q2 2021.

Consumers seek extra savings because prices for some models have risen significantly, perhaps as much as $7,000 over what Zabritski calls a "short period of time." The sticker shock is even more profound for buyers returning to the market for the first time in several years.

"Between the inventory shortage and rising vehicle costs, consumers are looking to make the most cost-effective decision, which is often a used vehicle," says Zabritski. "The benefit of higher vehicle values is that consumers can get more for their trade-ins, which can help offset the increased cost of their next vehicle."