Auto Credit Availability Tightens Again in August
Friday September 9, 2022
- Access to auto credit declined for the fourth straight month in August, according to the Dealertrack Credit Availability Index for all types of auto loans.
- The decline in access in recent months reflects conditions that were last tighter in January.
- Credit access declined across most lender types in August, with auto-focused finance companies loosening slightly and credit unions tightening the most.
Access to auto credit declined for the fourth straight month in August, according to the Dealertrack Credit Availability Index for all types of auto loans. The All-Loans Index declined 0.8% to 102.5 in August, reflecting that auto credit was harder to get in the month compared to July. The decline in access in recent months reflects conditions that were last tighter in January. With the decline in August, access was looser by 4.0% year-over-year, and compared to February 2020, access was looser by 3.4%. The index in April had been the highest recorded in the data series going back to January 2015.
Dealertrack Credit Availability Index
Auto loan access declined in August for the fourth straight month
The credit availability factors in August mostly moved against consumers. The average yield spread on auto loans widened, so rates consumers saw on auto loans were less attractive in August relative to bond yields. The average auto loan rate increased by 23 Basis Points (BPs) in August compared to July, while the 5-year U.S. Treasury declined by 7 BPs, resulting in a wider average observed yield spread.
The approval rate fell, the subprime share declined, and the down payment share increased, which worked against consumer access to credit in August as well. The only factors to move in support of consumers in August were an increase in loan terms and an increase in the share of loans with negative equity.
All loan types saw tightening in August. All new loans through non-captives tightened the most. Used loans through franchise dealers tightened the least in the month. On a year-over-year basis, all channels saw higher credit access, with certified pre-owned (CPO) loans loosening the most.
Credit access declined across most lender types in August, with auto-focused finance companies loosening slightly and credit unions tightening the most. On a year-over-year basis, all lenders had looser standards, with auto-focused financed companies loosening the most.
Each Dealertrack Auto Credit Index tracks shifts in loan approval rates, subprime share, yield spreads and loan details, including term length, negative equity, and down payments. The index is baselined to January 2019 to show how credit access shifts over time. Across all auto lending in August, yield spreads widened, the approval rate declined, and the subprime share declined, so those factors moved against accessibility. Terms lengthened and the share of loans with negative equity increased, and those moves helped mitigate some of the tightening.
Measures of consumer confidence improved in August. The Conference Board Consumer Confidence Index® increased 8.3% in August when a smaller increase had been expected, but the July index was also slightly revised down. Both underlying measures of present situation and expectations saw strong gains. Plans to purchase a vehicle in the next six months increased slightly but remained down year over year. The Consumer Sentiment Index from the University of Michigan also saw strong gains in August. The Michigan index rose 13% as gains extended from a record low in June. Similarly, the Morning Consult Index of Consumer Sentiment saw accelerating gains in August. That index increased 4.6% in August after rising 3.3% in July. The declining average price for gasoline has lifted consumer attitudes even though stock market volatility returned in August. The average price for unleaded gasoline nationally was $3.83 at the end of August, representing a nearly 24% decline from its peak of $5.02 in June.
The Dealertrack Credit Availability Index is a new monthly index based on Dealertrack credit application data and will indicate whether access to auto loan credit is improving or worsening. The index will be published around the 10th of each month.