Retail Automotive Market Sees Signs of Steadying

A new TransUnion report shows that dealers may expect an even jollier holiday season and new year than previously thought.

Just as some manufacturers raise incentives to spur dealers’ sales, TransUnion data shows that consumers’ monthly car payments stabilized in Q3. Although affordability is still a challenge, new-car payments increased minimally by 0.3%, or $745, while monthly used-car payments declined from $534 to $526 year over year.

“The growth and balances that consumers are taking on…is slowing down. The growth in delinquency is slowing down as well,” Satyan Merchant, senior vice president of automotive for TransUnion's financial services vertical, tells WardsAuto. “That means the consumer might be doing slightly better (economically) than a year ago. That was a key takeaway for me. If these trends continue, where the consumer is paying a little bit less on a monthly payment on a financed vehicle, I think that’s a positive sign in the industry. And it may lead to more origination growth.”

The Federal Reserve’s recent rate reductions and manufacturers’ incentives are among the factors spurring a return to normalization, he says. This month, the Federal Reserve cut the rate by a quarter of a percentage point. That follows its September cut of half of a percentage point.

“Number one is that we are seeing more incentives, and often in terms of lower APRs. On the new-vehicle side, we're seeing over 40% of new vehicles financed at an interest rate of 5.9% or less. That can go all the way down to zero on certain promotions,” Merchant says. “The average APR on a new-vehicle loan was 7.2%(a year ago). Now it’s down to 6.8% and 43% (of new-vehicle auto financing interest rates) are below 5.9%, so that’s a really good sign that manufacturers and dealers are offering competitive finance rates for people buying a new vehicles.”

Still, TransUnion data shows originations remain well below historical norms, at 6.4 million for Q2 2024, up slightly (0.7%) in year-over-year terms. The recent interest rate reduction – which Merchant calls significant – may continue to spur consumers to purchase vehicles in 2025.

But it’s important to consider other factors that may slow down vehicle sales. Leasing has risen to 25% of registrations, up from 17% two years ago.

Another point to consider is that while delinquencies increase, the growth rate continues to slow. Serious consumer-level delinquency rates (60-plus days past due) were at 1.6% in Q3 2024. As expected, most of those are from consumers with low credit scores. Still, those delinquencies impact loan availability across the board, says Merchant.

“That said, interest rate declines along with more normal inventory levels and reduced prices could provide relief to consumers in this market,” he says. “The leasing options (fueled by manufacturers’ incentives), along with the stabilization of monthly payments for new and used cars, will play key roles in solving the affordability challenges faced by many when car shopping.”

And super prime customers, those most likely to secure loans, are leading the way in originations.

“Super prime tier continues to be where the growth of originations is year over year. That’s where a lot of the activity is,” Merchant says. “It’s still slightly shrinking, so the year-over-year comparison is slightly lower, but it’s almost getting closer to even and closer to positive.”