The credit crunch looms for auto lenders — perhaps most imminent for those lending to the subprime market.
To that end, and as sites such as In search of Alpha, Credit acceptancewhich helps car dealerships offer car financing — including to consumers with less than stellar credit profiles — sounded a warning about the short-term prospects of seeing timely payments on recently extended loans.
The main pressures appear in metrics where collection rates have declined, to a recent 67.1% and where the company had given a forecast of 67.6%.
The credit acceptance stated in its Press release Monday (August 1) that the forecast applied to consumer loans that had been issued this year. The company also said the drop would impact cash flow. And in a bit of granular detail, Credit Acceptance said in its release that for loans that were issued from January 1 through March 31, the expected recovery percentage was 66.4%. Initially, this percentage was 67.2%.
The failure of forecasts – along with comments on the credit acceptance conference call – helped to send the stock down 9% on the day, and lending peers such as Ally Financial were down points. single digit percentage.
During the conference call with analysts, Credit Acceptance Treasury Director Doug Busk said “the end of stimulus and additional unemployment benefits” had impacted loan performance. He also noted that inflation had taken its toll, even as consumers “worked” on savings accrued from previous stimulus payment activity.
Consumers, he said later in the call, have seen at least some impact on their ability to pay in an inflationary environment that means they have to spend more on gas and food.
The read across looks troubling for the paycheck economy as a whole.
Many consumers in the United States – at 61% – have little, if anything, after paying the monthly bills. These recurring obligations include car loans. Explore demographics where consumers earn less than $50,000 and 77% live paycheck to paycheck. A third of them have difficulty paying their bills.
Read more: 58% of consumers are living paycheck to paycheck, up from 54% a year ago
PYMNTS research also found that 13% of all consumers – around 33.5 million people – spent more than they earned in the past six months, up from 12% in May. The average savings of all consumers fell 8% from $11,724 in May to $10,757 in June. For consumers living paycheck to paycheck with problems paying their bills, that cash cushion has fallen from a high of over $4,000 to $2,460 recently.
See more : Savings cushion shrinks for low-income paycheck-to-paycheck economy
Faced with the choice between putting food on the table and keeping gas in the car — in other words, stretching the dollars — consumers will sort through their bills. And paying the car bill on time can take a step back for now.