Data Point
Auto Credit Availability Declines for August
Tuesday September 10, 2024
Access to auto credit declined again in August as credit tightened across all channels and most lender types, according to the Dealertrack Credit Availability Index. The All-Loans Index was 92.5 in August, down 0.5% from the July reading and down 1.7% year over year.
Dealertrack Credit Availability Index1
Auto loan access worsened slightly in August and was down year over year
All Auto Loans Index (Jan2019=100)
The decline in the index was driven by decreased loan approval rates, shortened loan terms, and increased yield spreads, making it more difficult for consumers to access auto credit. The share of subprime loans and the negative equity share increased slightly, positively impacting consumer credit access. However, the percentage of down payment was flat month over month and had no impact on consumer credit access.
Credit Tightens Again Across All Sales Channels
Credit availability tightened in August across all sales channels. While new-vehicle loans not financed through a captive lender saw the least tightening, franchised used loans saw the most tightening month over month. Credit access in August was tighter than a year ago in all channels. New loans showed the least tightening year over year, and certified pre-owned loans saw the most tightening conditions compared to last year.
Auto-Focused Finance Companies Ease Credit as Others Tighten
In August, credit availability decreased for most types of lenders. Credit unions tightened their lending standards the most month over month compared to other types of lenders. On the other hand, finance companies that specialize in auto loans slightly eased their standards and have loosened the most compared to pre-pandemic levels. When looking at the trends over the past year, auto-focused finance companies tightened their standards the least, while banks tightened their standards the most.
Yield Spread Increased and Approval Rates Decreased
The average yield spread on auto loans in August grew by 27 Basis Points (BPs), making the rates consumers saw on auto loans less attractive relative to bond yields. The average auto loan rate decreased by 18 BPs in August compared to July, while the 5-year U.S. Treasury decreased by 45 BPs, resulting in a larger average observed yield spread. Since March of this year, we have observed a 98-basis point decrease in average auto loan rates.
The approval rate decreased by 50 BPs in August and is down 3.2 percentage points year over year. The subprime share increased 20 BPs in August and was up 1.1 percentage points year over year. This marks the first increase in subprime share since March.
Shrinking Term Lengths Amid Stable Down Payments in August
The share of loans with greater than 72-month terms fell 60 BPs after being flat for four consecutive months and was down 1.6 percentage points year over year. The number of loans with negative equity increased by 120 BPs in August for a second month. On a year-over-year basis, the percent of loans with negative equity saw an increase of 4.2 percentage points. The down payment percentage was flat for a third month after slowly trickling down since the start of the year and is flat compared to a year ago.
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.
Measures of Consumer Confidence Increased in August
The Conference Board Consumer Confidence Index® increased by 1.4% in August as views of the present and future improved. Consumer confidence was down 5.0% year over year. Plans to purchase a vehicle in the next six months declined compared to July to the lowest level since February and was lower than August last year. According to the sentiment index from the University of Michigan, consumer sentiment increased 2.3% in August compared to July but was down 2.2% year over year. The median consumer expectation for inflation in a year declined to 2.8%, which was the lowest level since December 2020. The expectation for inflation in five years was steady at 3.0%. The consumer’s view of buying conditions for vehicles was unchanged from June and at the lowest level since December 2022 as views of interest rates and prices remained very negative. The daily index of consumer sentiment from Morning Consult saw further improvement in August, extending a streak of three-monthly gains, but it lost some momentum at month-end. The index increased 0.3% for the full month, leaving it up 4.9% year over year. Gas prices declined 4.3% in August as the national average price for unleaded gas from AAA was $3.33 per gallon as of August 31, which was down 13% year over year.
The Dealertrack Credit Availability Index is a 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.
1In November 2023, the data behind the Dealertrack Auto Credit Availability Index was reset by our data sciences team as part of a migration to a new data management system. All points in the data set were reestablished, with January 2019 in the index set at 100 (as it had been previously). The All-Loans Index plot used in this post utilizes the new data set. The absolute numbers have shifted, but the trends and narrative have not. For more information, contact the Cox Automotive team.
Jonathan Gregory
Jonathan Gregory is a Senior Manager on Cox Automotive’s economic and industry insights team, which works to find actionable insights for the industry posed by Cox Automotive clients. Jonathan works with the Sales, Finance, and Data Science organizations and creates innovative solutions often combining proprietary data from other Cox Automotive brands. Jonathan joined Cox Automotive in 2022.