Industry Experts Predict Volatility in Auto Loan Sector: A Preview of Future Ups and Downs
Buckle up, folks, 'cause the car-buying rollercoaster's picking up speed. You might've noticed the pricey steel bars lately – yep, tariffs on imported vehicles, back from last century's debate about European tariffs on our poultry. Jonathan Smoke, chief economist at Cox Automotive, isn't sugarcoating it: "There's really not a great recipe for how to get around this."
In the current climate, the average car shopper faces an extra pile of challenges. Add tariffs to the mix with supply chain hiccups, and affordability becomes a bloody battleground. To get some expert insights on the wobbly road ahead, we grilled Smoke, Melinda Zabritski (Experian's head of automotive insights), and Satyan Merchant (TransUnion's senior vice president) on the state of affairs and what buyers can anticipate.
The Immediate Bumps on the Road for Car Shoppers
Tariffs won't just crank up the price of a new set of wheels; experts predict that even the most economical vehicles could surge up to $4,500. But it's not all gloom and doom. Smoke explains, "The clock's ticking for the inventory of imported vehicles. There's a rush happening right now for people to buy those vehicles. That inventory is probably going to run out by sometime in May." So, if you're on the lookout for a vehicle, you'll pay more, but you'll also pocket a bit more on your current whip if its value holds steady.
Auto-Approval Anxiety
Credit score in a bind? Don't lose hope – there's a lender out there for you, but remember that rejection rates are on the rise. Last summer, 11% of all auto loan applications received the cold shoulder. Will 2025 bring open credit floodgates? Melinda Zabritski, Experian's head of automotive insights, shares a lighter perspective: "Consumers across a wide variety of credit tiers can usually find a lender who is willing to fund them."
Scurrying Towards Lower Interest Rates
Auto loan rates continue to punch consumers wallets in the gut. But when will they slide down and give car buyers some financial relief? That depends on a complex cocktail of factors, including the pipeline for loan repayments, the economic climate, and the ever-looming specter of inflation or even a recession. Smoke offers a glimmer of encouragement: "It's within the realm of possibility [over] the next few months for us to get back to the rates that we had in December, which would be about a full percentage point lower than we're seeing right now."
Electric Vehicles Warp Speed
The electric vehicle market's zooming ahead. Cox Automotive reports a 10% surge in sales during the first quarter of 2025 compared to the prior year. And the explosive growth of EV leasing could be the next mayhem-inducing trend, according to both Experian and TransUnion's datasets. If you're eyeing an EV, don't overlook federal and state tax credits – they can do wonders for keeping your budget in check.
Remember the wise words: "The rollercoaster has started its ride." So, hold on tight and ride the waves – but heed this ancient rule of car-buying: Keep the monthly vehicle expenses within a meager 10% of your monthly income to stay afloat. Let's face it; we haven't been this frothy in the market since the late '60s.
- With tariffs adding to the mix, the average car shopper is facing an increased number of challenges in the current climate.
- Experts predict that even the most economical vehicles could surge up to $4,500 due to the tariffs, but the inventory of imported vehicles might run out by May.
- Rejection rates for auto loan applications are on the rise, but consumers across various credit tiers can still find a lender willing to fund them.
- Auto loan rates continue to negatively impact consumers' wallets, but there's a possibility that they could decrease by a full percentage point over the next few months.
- The electric vehicle market is experiencing rapid growth, with a 10% increase in sales during the first quarter of 2025 compared to the prior year.
- The explosive growth of EV leasing could be the next trend in the automotive industry, according to data from both Experian and TransUnion.
- To stay financially stable while buying a vehicle, it's crucial to keep the monthly expenses within 10% of your monthly income and take advantage of federal and state tax credits for electric vehicles.
