Wrap It Up - We'll Take 2021 Auto Finance Growth
The year 2021 is one for the record books for many reasons, some too obvious to state. Despite a tumultuous year for the industry as a whole, the growth in automotive finance and used car sales made up for some of the burden of the chip shortage that thwarted the growth of the new car segment. The gains this year, reassure us that all's right with the world. Well, at least the used car segment and the finance & insurance profit center. By the way, 2022 has a positive outlook as well, with more growth expected. Let’s dive in.
The state of the Automotive F&I Market both globally and stateside is enjoying growth, increased credit stability and low delinquency rates on consumer automotive loans. As it stands, nearing the end of Q4,the automotive finance industry is experiencing a strong finish.
Let’s take a walk down memory lane and review highlights of the famed 2021.
The global finance market speaks to the overall health of the automotive Finance industry and takes into account the segment of automotive providing financing options for consumers, i.e. banks, finance companies and OEMs. The Fortune Business Insights Automotive Market Size Trends Report predicts market trends through 2028.
The growth rate trots along at a healthy rate, with the global automotive finance market projected growth from $245.62 billion in 2021 to $385.42 billion in 2028 at a CAGR, the compound annual growth rate, of 6.5% between years 2021-2028. The report goes on to mention the disruptive technology of online automotive finance apps will continue to fuel market growth. The various technologies across FinTech enable customers to easily compare lenders and get approvals for auto loans. What was once a nice-to-have is now essential for sustainable growth in the automotive industry.
A key factor of the projected growth, is the market segmentation of consumer auto loans is at 80%. This is partially driven by vehicle price increases in 2021,resulting in more customers financing larger loan amounts.
Reports highlighting a strong global auto finance market are everywhere. We can see where some of the numbers come from by digging into some of the large retailers.
Used Automotive Boasting Record Revenues
According to Carmax investor information, the Q3 earnings report states: CarMax CarMax Auto Finance (CAF) income increased 54.7% due to the combined effects of favorable loan loss performance, higher net interest margin and an increase in average managed receivables. Used vehicle sales increased 1%, while total used vehicle revenues increased 4.5% due primarily to average retail selling prices rising nearly $700 per unit versus the prior year quarter. President and CEO, Bill Nash said “We delivered strong EPS growth this quarter thanks to solid execution by our teams.”
To no surprise, these are some pretty significant revenue increases, supporting the overall industry numbers mentioned above. Additionally, Carmax will resume construction of at least 8 new locations for FY 2022.
The fast-growing online retailer Carvana, reported Total Gross Profit per Unit of $4,672, an increase of $616 YoY. Carvana Founder and President, Ernie Garcia, reported Q3 of 2021 saw an increase of 74% YoY, made up of 11,949 Retail Units Sold, with revenue of $3.480 Billion, an increase of 125% YoY.
All this growth throughout the automotive finance sector could mean higher risk and loan defaults. But it is just the opposite, consumer loan delinquency rates remain low, despite the increased loan amounts. Further, according to a recent Experian report, consumer FICO scores have increased, with 67.7% of consumer auto loans in the Prime and Super Prime category, supporting loan delinquency remaining under 0.5%.
After more than an 18-month frenzy, it seems as though the automotive finance segment is finishing strong and rolling into 2022 even stronger.
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