News Edition
In 2025, a seamless customer experience is the key differentiator when it comes to shopping for a car. When customers can shop for vehicles across the country with the power of the internet, it is nearly impossible to sell a customer on the breadth of vehicles at your dealership. The new method of product offering has led 7% of vehicle buyers to ditch the dealership entirely and buy their vehicles entirely online. And, as of 2023, another 43% of consumers completed at least some of the steps online, rather than the entire process at the dealership, showing just how much the auto industry trends are changing.
In the stead of a portfolio of products, the level of customer service and ease in the transaction is what an overwhelming majority of customers found to be the most important. Statistically, nearly three-quarters of all consumers claim they would visit dealerships more if the buying process were improved. Another 54% of all consumers claim they would buy from dealerships if they didn’t have the lowest price, so long as the customer had a preferred experience at the dealership.
However, the method of getting a car is not the only way that vehicle purchasing has changed in recent years. The share of auto lenders has seemed to consolidate around the more popular methods. In November 2024, financing a car directly with the dealership increased by 19.2% year-over-year. Similarly, financing directly with the maker of the car saw a 6% growth. In that same timeframe, alternative methods such as financing with a credit union shrank by 11.8% as well. Similarly, all other miscellaneous financing methods saw a decrease of 11.5%.
The allocation of consumer debt has also shifted around in recent years. Since 2014, Student loans have decreased from 37.1% of consumer debt to only 29%. On the other hand, auto loans and leases shot up 14.7% from 31.3% to 35.9% during the same period. This growth has led to the total outstanding balances for auto loans and leases to grow to $1.7 trillion, which comes alongside a 2.3% year-over-year increase.
With the consumer debt ballooning, auto delinquencies have seen disproportionately higher increases. Auto delinquencies are defined as auto loans and leases that have a payment that is 60 days or more past due. As of November 2024, 1.5% of all auto financing agreements are considered delinquent, which is 4.5% higher than last year. Unfortunately, the forecast for delinquent loans and leases is very bleak. As the generations get younger, the percentage of auto delinquency is larger than the previous one. In fact, only .7% of all auto financing agreements are delinquent for Baby Boomers, whereas 2.3% of these financing agreements are delinquent for Generation Z.
In conjunction with the auto delinquencies, the quality of auto loans and leases is decreasing. Prime and near-prime numbers are decreasing by 2.4% and 0.6%, respectively. Simultaneously, subprime and deep subprime grew by 4.8% each. The last major factor putting pressure on dealerships and consumers alike is the underlying asset. The average price of a new car went from $34,450 to $48,397 in just 8 years. Alongside this, the average interest rate for a new vehicle with a 60-month loan went from 4.26% to 7.57% during this same timeframe from 2016 to 2024. All these financial and non-financial factors have led the origination of new auto loans and leases to drop by 1.6%, marking a $9.2 billion pitfall from September 2023 to September 2024.
Because some of those financial pressures can cause certain customers to become ineligible for a new vehicle, certain customers have turned to synthetic identities (Syn IDs) to get approved. Since 2020, there has been a 59% annual increase in the presence of Syn ID’s. This drastic increase means the chance of a Syn ID being used in an auto loan credit application rose from around 5% to over 8%. Worst of all, fraud with these Syn ID’s resulted in $7.9 billion in losses and has a delinquency rate that is 3 to 5 times higher than the portfolio average.
So, how can you protect yourself against Syn ID at your dealership? Fortunately, companies like Equifax offer Know Your Customer (KYC) tools that can help proactively prevent fraud. This technology provides insights into the buying power of prospective customers while they’re still shopping for the vehicle they want. Best of all, they even streamline the buying process for customers without a Syn ID. To make sure your dealership is both protected against Syn ID’s and better able to serve those without, it’s essential to take advantage of Equifax’s KYC technology.
