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January 20, 2022
Finance and Insurance

Car prices won’t deter customers in 2022, EFG says

Consumers will be capable to afford automobiles in 2022 regardless of rising prices, and their demand means auto dealerships could have a robust yr, the finance-and-insurance merchandise supplier EFG Companies predicted final month.

“The retail automotive industry has seen firsthand just how financially prepared the average consumer is right now,” EFG Chief Revenue Officer Eric Fifield stated in a press release Dec. 7. “Between securing record trade-in amounts for their current vehicles and government stimulus checks from the previous year, demand for vehicles is not only high, but more consumers have more cash to put down on their next purchase.”

With provide constraints persevering with into this yr, Fifield stated EFG is advising purchasers to concentrate on strategic planning, implement a sensible method to pricing and emphasize buyer engagement and implementation of value-added services to extend market share in the approaching months.

EFG CEO John Pappanastos additionally talked about customers’ sturdy monetary place throughout a Nov. 20 dialogue of GAP publicity on used automobiles.

EFG discovered that whereas automobile prices had soared, “the amount being financed isn’t up materially,” Pappanastos informed Automotive News. He stated 18 % fewer transactions contain unfavourable fairness when customers search to roll an current automobile into a brand new buy.

“They’re getting more for their trades,” Pappanastos stated. “They’re not actually borrowing more money.”

Loan-to-value ratios are dropping, whereas mortgage phrases have risen, in keeping with Pappanastos. Favorable wealth, financial savings, refinancing and work-from-home developments allowed automobile patrons to handle larger month-to-month funds, he stated.

Soon after his Nov. 20 feedback, Experian reported customers financed a median of $26,230 on used automobiles through the third quarter, up from $21,622 the earlier yr. The common month-to-month fee rose $70 yr over yr, whereas the common mortgage time period rose by almost two months to 66.97 months. However, the common rate of interest dropped from 8.39 % to eight.12 %, and the common loan-to-value ratio dropped from 124.21 % to 110.76 %.
EFG anticipated about 4 million automobiles value of pent-up demand existed getting into 2022, which favored the auto retail market, Pappanastos stated.

“We think there’s really bright skies ahead for automotive,” he stated.

Pappanastos stated franchise dealerships would have an edge over independents due to entry to floorplan credit score and entry to trade-ins.

“Driven by constrained consumer spending at the peak of the 2020 pandemic, the economy has demonstrated a ‘rubber band’ effect,” Pappanastos stated in a press release Dec. 7. “After a significant pullback, the economy sprang forward in 2021 with such velocity that demand for goods overwhelmed global supply chains. Businesses also have struggled to ramp up in the face of several stops and starts, labor concerns and changing consumer demand. Despite these issues, we believe the forecast for the overall 2022 automotive retailing space is strong with numerous opportunities for revenue generation.”

Pappanastos stated EFG inspired dealerships to keep watch over new-car stock turns and automaker incentives for a way of when the market would cool. But the elevated quantity of recent automobiles would come to market with larger sticker prices than earlier than, retaining used-vehicle prices excessive, he stated. Dealerships ought to anticipate a “fairly gradual decline” in used-vehicle values, not a collapse.

“Pent-up demand for new vehicles is expected to continue to build,” EFG vendor companies Executive Vice President Scott Kaskocsak stated in a Dec. 7 assertion. “As a result, OEMs have reduced incentives by 45 percent over the past year. Strong consumer financial positions and favorable credit terms spell revenue opportunities for those dealers who know how to manage purchasing. This means selling into their pipeline of inventory, rather than just what’s on the showroom floor.

“As the worldwide provide chain woes start to unwind, shopper willingness to pre-order models with versatile financing can imply the distinction between a sale or a miss.”

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