Auto Credit Availability Worsened Again in January

Access to auto credit declined in January as credit tightened across all channels and across most lender types compared to December, according to the Dealertrack Credit Availability Index. The All-Loans Index declined to 93.0 in January, down 3% year over year.

The Dealertrack Auto Credit Total Loan Index had shown some improvements during the summer and fall of last year, but those gains have been wiped out by the declines seen over the past three months. In fact, the index dropped by 1% in January, marking the lowest level since August 2020. Credit access was tighter than a year ago in all channels and all lender types. Compared to February 2020, credit access was tighter in all channels except for used sales through independent dealers and loans from auto finance companies.

Dealertrack Credit Availability Index¹

Auto loan access worsened in January and was down year over year

All Auto Loans Index (Jan2019=100)

Most January Credit Availability Factors Moves Against Consumers

Credit availability factors mostly moved against consumers in January. Yield spreads widened, term length, approval rate, and subprime share all declined, and those moves reduced credit access for consumers. An increase in the negative equity share represented the only improvement for consumers. The down payment share was unchanged but at the highest level in the history of the data series. By channel, new-vehicle loans saw the most tightening, while used-vehicle loans through independent used dealers saw the least amount of tightening. On a year-over-year basis, all channels were tighter, with used-vehicle loans through franchised dealers having seen the most tightening. Banks tightened the most among lenders in January, but credit unions were the tightest year over year.

The average yield spread on auto loans in January widened by 15 Basis Points (BPs), so rates consumers saw on auto loans were less attractive in January relative to bond yields. The average auto loan rate increased by 13 BPs in January compared to December, while the 5-year U.S. Treasury decreased by 2 BPs, resulting in a wider average observed yield spread.

The approval rate decreased by 8 BPs in January and was down 1.6 percentage points year over year. The subprime share decreased to 11.2% in January from 11.4% in December and was up 0.6 percentage points year over year.

The share of loans with greater than 72-month terms decreased by 2 BPs and was down 1.8 percentage points year over year.

All channels saw declining credit availability in January. Independent used loans saw the least tightening in credit access during the month, while new-vehicle loans saw the most tightening. On a year-over-year basis, all channels were tighter, with used franchised loans having seen the most tightening.

Credit Availability Declined Across Most Lender Types in January

Credit availability also declined in January across most lender types. Auto-focused finance companies were the only lender type to see loosening, while banks tightened the most. On a year-over-year basis, credit access was tighter across all lender types, with auto-focused finance companies tightening the least while banks tightened 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.

Most Measures of Consumer Confidence Saw Strong Improvement in January

 The Conference Board Consumer Confidence Index® increased by 6.3% in January, powered by views of the present situation jumping 9.6% and to the highest level since March 2020. Consumer confidence was up 8.3% year over year. Plans to purchase a vehicle in the next six months declined to the lowest level since April and were down year over year. Consumer sentiment also improved in January, according to the sentiment index from the University of Michigan. The Michigan index increased 13.3% for the month and was up 21.7% year over year. Consumer expectations for inflation in a year declined to 2.9%, which was the same expectation for inflation in five years. The consumer’s view of buying conditions for vehicles increased to the highest level since the summer of 2021 as views of prices and interest rates were less negative. The daily index of consumer sentiment from Morning Consult changed little, down 0.6% in January but up 12.6% year over year. Gas prices increased in January. According to AAA, the national average price for unleaded increased 1.3% to $3.15 per gallon as of Jan. 31, which was down 10% 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 10^th 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

Senior Manager, Economic and Industry Insights

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.