With a majority of the country under orders to stay home due to COVID-19, there has already been a dramatic drop in auto sales, miles driven, and accident frequency. As many states further extend shelter-at-home guidelines through the end of May or longer, the pandemic is likely to have a long-lasting industry impact.
For automotive lenders, the implications are already becoming clear. Call duration is up 50% as worried consumers reach out about loans, overwhelming call centers and limiting lender availability. Meanwhile, total loss resolution remains a time-consuming process, further stretching resources as lenders adapt to a fully remote working environment.
How did we get here?
Before the COVID-19 pandemic, auto loans were increasing in number and length. Consumers were purchasing cars with up to seven-year loans, extending beyond the typical three-year vehicle maintenance warranty.
In fact, according to Experian, the average loan term length in the U.S. is just over 69 months, and 85% of new vehicles are purchased with financing. That means a large share of vehicles up to six or seven years of age likely have an outstanding loan balance.
With more than 40 million Americans filing for unemployment since mid-March, consumers may find themselves defaulting on loans or refinancing as they look to stretch limited income across competing priorities.
Negative equity already hit record highs in April, making up 44% of new vehicle sales — an average of $5,571. These numbers are likely to climb even higher as unemployment rates increase and markets struggle to regain traction.
Many could be facing prolonged unemployment while the economy reopens and adapts to the “new normal” — whatever that may be. And with impending bills to pay and families to support, more and more consumers will turn to lenders for loan help and guidance.
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