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As Trucks Drive Auto Sales, Watch For Signs Of Delinquency

Protecting consumers and lenders alike takes on new urgency as sticker prices surge and loan terms lengthen.

Though U.S. auto sales have slowed, one segment is thriving and even growing against the odds. More than two-thirds of all auto sales these days consist of light-duty trucks and sport-utility vehicles (SUVs), according to Bloomberg. Meanwhile, mid- and full-size trucks also are enjoying double-digit sales growth, reports trucks.com.

While the automotive industry and numerous other dependent industries, such as auto lending, are usually happy to see increased vehicle sales in any segment, there is a catch: trucks and SUVs have become the priciest class of vehicles, and borrowers are starting to have a hard time paying back these larger loans.

Advanced Features Driving Up Prices

It used to be that feature-rich, high-end sedans cost buyers the most of any auto type. These days, sedans are proving unpopular with consumers, who prefer trucks and SUVs. In response, auto manufacturers are bringing premium features to trucks and SUVs, making these work and towing vehicles feel modern, easy, luxurious, and comfortable:

  • Advanced interior design, premium seats, and zoned temperature controls
  • Large (12 inches) touch screen devices to display camera feeds, navigation, apps, and internet
  • USB ports and advanced device connectivity
  • Satellite radio systems and surround sound speakers
  • Advanced safety and security features, such as collision and lane-departure alerts
  • Automated parallel parking
  • Blind-spot monitors and cameras that account for trailers

As you’d expect, these advanced, premium features come with a premium price tag. To make adding these luxury systems worthwhile, truck manufacturers are charging high prices compared to base model pickup truck pricing: $35,000 on average, compared to Ford’s loaded new F-Series going for $100,000!

The good news for lenders is that with prices like that, consumers won’t be paying cash. The bad news is that borrowers may struggle to repay such monstrous loans, leaving lenders to absorb the costs of repossession and depreciation.

Signs Point To Greater Delinquencies

With U.S. household debt almost back to pre-recession levels, clearly consumers are not worried about taking on debt. However, auto lenders must worry about being repaid. Currently, according to The Washington Post, more than 6 million U.S. auto borrowers are at least three months late on auto loan payments. The Federal Reserve Bank of New York warns that the past couple of years have brought a notable increase in auto loan delinquency, especially from subprime borrowers.

Putting The Brakes On Delinquencies

Fortunately, the auto lending industry has some good ways to minimize the chances of delinquency:

No. 1: Think twice on long loan terms.

To make monthly payments manageable, lenders have been lengthening loan terms and running the risk of loaning more than borrowers can afford to repay. Expensive pickup trucks today are being financed over seven years! Since longer loan terms are associated with higher rates of delinquency, be sure to weigh the increased chance of delinquency when making extended loan offers.

No. 2: Take advantage of technology.

As vehicle technology has advanced, so has auto repossession technology. Take license plate recognition, for example. By working with a vendor that uses camera car technology to scan license plates on parked cars, your credit union receives access to up-to-the-minute location data for vehicles and alerts when a vehicle sought for repossession is located and available, drastically cutting the time and expense involved in recovering assets.

With auto manufacturers realizing much greater profits from trucks and SUVs than from traditional cars, they’re sure to continue investing in technology and advanced features that help sell this profitable vehicle class. It’s up to the lending industry to protect its loans from delinquency.

Learn more about managing lending risk, protecting your collateral, and addressing delinquency in SWBC’s new ebook, Recipe for Risk Management.

Karen Townsend is AutoPilot Services Program Manager for SWBC.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
February 4, 2019

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