Banks Tighten Up
In one of my earlier blogs, I spoke about the 0% financing and other incentive rebates banks were offering to entice customers to come in now and purchase a vehicle. This was coming from the captive lenders. Well, along with that, we have noticed a trend with banking regulations in general. Most banks are tightening up their belts in order to mitigate the risks associated with the coronavirus pandemic. Finance Managers may notice that it is not as easy as it used to be, to get their customers approved. And even then, they might have to either get creative or fulfill a full line of stips. Large non-captive lenders are being more conservative with their portfolios, not handing out those easy approvals as they used to. With the pandemic going on, job losses are a current concern in the event customers are unable to make their payments. At the same time, you might have noticed that outside the captive lenders, auto rates aren’t as low as one would expect, most notably on the used car and subprime side, even though the Federal Reserve cut down the rates to zero.
So what does this all mean? Unfortunately, we are facing a time where job loss is actually really high, and others are unsure of their current employment status. Banks are wary of that and are being more selective in handing out loans. However, people still need cars; it just might take a little more work than usual. This is where the truly skilled Finance Manager comes into play – those that know their banks and programs like the back of their hand, and how to correctly structure a deal, and land the customer on the right vehicle – they can truly stand out and help those in need.
Along with that, dealers faced an increase in demand for vehicles for the month of May (which is a great problem to have), however, as a result, inventory is depleting pretty quickly for most, especially at the SUV level. That generally wouldn’t be a problem under normal circumstances, but this time, however, is a little different. Because of the coronavirus pandemic, many manufacturing plants worldwide had to shut down. Yes, they have opened up again, but just recently, and with a limited capacity. Production isn’t as swift as it was pre-virus. Plants have to ensure the safety of their employees, follow CDC guidelines, and keep an eye out for outbreaks that may occur. The production also takes time, and it can be several weeks before some manufacturers can refill their inventory.
One thing we see is that the demand for vehicles is increasing - because of the virus, consumers are more interested in owning their own car instead of taking public transportation. As businesses open back up and people head back to work, we could see an influx of demand for new and first-time buyers. Unfortunately, the road back will not be an easy one. The next couple of months will be tough as the economy tries to recover from the virus and dealers will have to work harder to overcome many obstacles in order to succeed.
Some interesting articles to read: