When it comes to recent U.S. auto sales, it’s an interesting tale of two markets.
Electric vehicle sales in 2022 more than doubled from the previous year to over 800,000 units, according to Motor Intelligence, as gas prices soared and more automakers introduced their own models. But total auto sales in the U.S. reached just 13.7 million vehicles last year, down 8% from 2021 and the lowest annual growth in more than 10 years, according to Wards Intelligence. The drop is due to parts constraints from supply chain issues and rising interest rates on loans.
For auto lenders, the market is getting more complicated. After a few years when the value of new and used cars rose due to low supplies, the situation is returning to more normal trends. Edmunds reports that 17.4% of new vehicle sales with a trade-in had negative equity in Q4 2022, compared to 14.9% in Q4 2021. Meantime, the average amount owed on upside-down loans was $5,341 in Q4 2022 compared to $4,141 in Q4 2021, said Edmunds.
Both ends of the market — gas and electric — demand new ways of doing business and communicating with buyers throughout the sales, financing and loan servicing process.
EVs need new financing and communications
Many automakers are trying to catch up to Tesla, the electric market leader. Ford is now second and Hyundai and Kia are close behind. While EVs are only about 5.8% of the total market now, Bloomberg estimates that by 2030, more than half of new cars sold will be electric. Direct-to-consumer selling and financing models embraced by companies like Tesla mean that traditional auto industry lenders must rethink how they market their financing products and deliver related auto communications.
Federal law mandates EV manufacturers warranty electric batteries for 8 years or 100,000 miles and California requires 10 years or 150,000 miles. Because replacing these batteries can be expensive and the cost of purchasing an electric vehicle is higher than gas powered, some industry players are pursuing new financial models, such as leasing the battery then replacing it when it falls below 70% of its capacity.
Given the opportunity, new lenders are getting a jumpstart. EV financing start-up Tenet says it’s changing how EVs are depreciated compared to gas models to enable buyers to take advantage of federal tax credits and high value retention of EVs. It’s also creating a package for financing the vehicle with an EV charger and installation.
Communications to help keep payments current
Roughly 16% of consumers who financed a new vehicle and 5.4% of consumers who financed a used vehicle in the fourth quarter of 2022 had a record monthly payment of $1,000 or more, according to Edmunds. As payments rise and inflation stays high, more buyers may struggle to stay current, particularly as the pandemic-related loan accommodation programs disappear. TransUnion says 1.65% of auto loans in the third quarter of 2022 were at least 60 days delinquent, the highest rate for 60-day delinquencies in more than a decade.
To lower barriers to payment, it’s important to make billing and payments fast, easy and convenient. For a growing numbers of consumers, that means digital options, including email and text messaging, and clear communications. Consumers need to easily find the amount owed along with the payment due date on statements. Many also want reminders of payment due dates along with alerts about late or missed payments, ideally with links to online payment portals.
CCM can help
Customer communications management technology can help auto finance companies stay in touch with their customers while also staying on top of the changing business. Our Expresso™ CCM hosted managed service gives companies the power to create and distribute paper, email and text communications on a single platform, using the same data file, and cater to any combination of customer preferences for bills, payment reminders and more. It also makes it easy to develop and update personalized messaging.
To learn more about how we can help you meet the communications and payment method preferences for consumers who finance their vehicle, connect with us at the 2023 AFSA Vehicle Finance Conference & Expo January 24 – 25 at the Hilton Anatole in Dallas. Schedule a meeting now with us at Booth #K17.
