Auto loans grow longer, rental vehicles age


While no one needs to tell you that the economy is not healthy, we should at least update you on the latest automotive trends related to the financial purgatory we are experiencing right now. Ford sent a note to dealers last week saying it would remove the minimum FICO requirement for 84-month financing, indicating that the industry may soon standardize auto loans that are even longer than the massive 72 months that have gained popularity over the last several years.

Meanwhile, those who need a vehicle on and off will find that rental rates have not come down as hoped. While analysts have previously suggested auto prices may stabilize over the fall, now we’re looking at going into the holidays with familiar high price issues – and there really is no reason. to think that will change after 2022 gets here.

Two decades ago, the average car loan was 58 months. By 2021, that figure has risen to 64 months, with a growing number of subprime clients believing they would be able to handle smaller payments over a longer period. This can mainly be attributed to the rise in the average price of vehicles, as consumers have gradually lost their purchasing power due to stagnant wages, inflation or whatever you want to blame the problem on. money now obvious.

One way to mitigate the increase in monthly payments is to spread them over a longer period. This has resulted in an increase in the number of repossessions of vehicles and has allowed the financial sector to technically demand more money by increasing the annual percentage rate (APR) as the terms lengthened. But most automakers tried to stay competitive by offering juicy incentives ahead of the pandemic and absolutely going the banana with freebies that matched the initial period when everyone was buying toilet paper and canned goods instead of cars. .

Those days are gone with the demand and prices for new and used vehicles.

Ford briefly offered a zero percent APR for 84 months as a way to incentivize purchases in early 2020. However, production had been curtailed in early 2021 as labor restrictions and geopolitical disputes demolished chains at supply. Suddenly everyone realized that the situation might not improve anytime soon and that there were fewer vehicles available than in previous years. The end result has been a consumer base that is now willing to pay more for products and a line of business aware that it could make more money by not offering incentives and low APRs.

Ford canceled its zero percent deal just months after its introduction. But he kept the 84-month loans to appeal to customers who might not be able to afford a new (or even used) vehicle. CarsDirect has since learned that the automaker has since started advising dealers that it will drop the minimum standards for 7-year auto loans:

While a buyer’s credit rating plays an important role in obtaining financing, it is only a basic requirement for a car loan. In this case, Ford’s captive finance company chose to adjust its requirements. This could make being able to afford a new car less of a black or white question about one’s credit rating.

84-month loans often have higher rates which can result in significant interest charges. While the benefit is usually a lower monthly payment, the total cost is another matter. For example, we estimate that Ford’s current rate of 6.9 [percent] on the 2022 Bronco Sport, a $ 40,000 SUV would cost more than $ 50,000 before taxes [and] costs.

“Our proprietary scoring models do a great job of gauging the likelihood that a candidate will be able to pay. FICO is an entry. Eliminating the separate FICO requirement opens up the financing prospect for more customers who would be eligible for 84 month financing within our models regardless of their FICO score, ”said the Ford Credit spokesperson. , Margaret Mellott.

Considering that selling less has actually left most automakers with a bottom line this year, we wouldn’t be surprised to see the trend spread across the industry. But is this what is best for consumers and the economy in general? While credit scores have always seemed somewhat arbitrary and unnecessary, opening the doors to anyone Ford thinks they can lock into an extended loan makes it seem like it could lead to predatory behavior.

However, the world of rental vehicles lacks the ability to hide rising fees behind annual percentages and longer terms. Following the trajectory of vehicle sales, rental prices fell to a ridiculously low level during the first half of 2020. This wreaked havoc on many agencies, leading to more than a few bankruptcy fears, dwindling fleets and downsizing. periods of massive layoffs. At the start of 2021, the entire industry was in utter chaos and realized that it could basically charge what it wanted in areas of high demand.

Popular rental site Kayak recently reported that searches for rental vehicles for the upcoming holiday season were up 230% from 2019, which was the last normal year on record. While that may be the same number of people looking for bargains, vehicle inventories remain slim overall. Most companies are keeping cars much longer than in previous years, and your author can attest that the latest loans (used to support my old gas consumer) were particularly crappy and expensive. I have also been to many rental locations that were sorely understaffed.

Letting vehicles approach 100,000 miles before being dumped is becoming more and more normal. Previously, rental companies would not have dared to offer you a car with more than 50,000 miles on the clock and more than a few agencies had a hard limit of only 25,000 miles. But those old rules are being thrown out the window because companies can’t buy enough inventory to meet demand.

On the plus side, adding vehicles still means that fares have leveled off from the craziness we witnessed in the summer of 2021. For a while, it was nearly impossible to find a car in some cities and towns. those that were available could cost over $ 400 per day. But some areas have since returned to daily rates that are only fifteen dollars higher than they were before the pandemic.

Unfortunately, the reprieve may not last.

Earlier this month, the Washington post spoke with many rental agency executives and market analysts to see if the chaos had really been subsidized. While most agreed that things were better than they were eight months ago, depleted fleets remained common as companies discovered regions where demand changed. That leaves the average rental fee at $ 99 per day, lower than it was just a few months ago, but higher than any timeframe in the past two years. Even worse is the general assumption that things will only get worse over the winter, with not everyone sure how 2022 might prepare.

“We expect these prices to increase as the holiday season approaches,” said Lindsay Schwimer, spokesperson for Canadian travel site Hopper.

Of WaPo:

“In terms of predicting the future, I can’t” [Greg Scott from the American Car Rental Association] noted. “I think what I’m hearing about new cars is we’re probably talking 2022 before we get the supply chain under control. I don’t think anyone is predicting a return to normal in quotes in 2021. “

[Deutsche Bank leisure analyst Chris Woronka] said he wouldn’t even expect rental car inventory to be fully available by next summer, saying it could be until 2023 when the situation is normalized.

Enterprise Holdings spokeswoman Lisa Martini said in a statement that the company, which includes the Enterprise, National and Alamo brands, is seeing increased demand across the country.

“We anticipate strong demand over the next few months, including the holiday season,” she said in the statement. “Our teams continue to work hard to meet the growing demand for leisure travel and meet the broader transportation needs of customers.”

These predictions were reflected by the spirits working for Kelly Blue Book and just about every other market analyst with working brainpower. It looks like the winter will be harsh if you’re interested in buying or leasing a vehicle and neither industry is interested in cutting costs when they know consumers are desperate. We’re going to have to wait for this one or just boycott the drive (thrill) until it becomes clear that consumers will not pay increasingly ridiculous prices or that inflationary spending will not generally decline.

[Image: Gunter Nezhoda/Shutterstock]

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