The credit crunch is looming for auto lenders – perhaps most immediately for those lending to the subprime market.
For this purpose and as mentioned on Tuesday (2 August) by sites like I’m looking for alpha credit acceptancewhich helps auto dealers offer vehicle financing — including to consumers with less than stellar credit profiles — has warned of the near-term prospects of on-time payments on recently renewed loans.
The key drags are evident in metrics where collection rates have fallen to a recent 67.1% and where the company had forecast 67.6%.
Credit Acceptance said in his profit release Monday (August 1) that the projections apply to consumer credit issued this year. The company also said the decline would hurt cash flow. And in a bit more detail, Credit Acceptance said in its press release that for loans allocated from Jan. 1 through March 31, the projected collection percentage was 66.4%. Originally this percentage was 67.2%.
The lack of guidance — as well as comment on the credit acceptance call — helped the stock fall 9% on the day, and credit peers like Ally Financial fell mid-single-digit percentage points.
During the analyst conference call, Credit Acceptance’s chief treasury officer, Doug Busk, said that “the end of stimulus and additional unemployment benefits” impacted credit performance. He also noted that inflation was taking its toll even as consumers “worked through” savings accumulated during previous stimulus payment activity.
Consumers, he later said on the conference call, would have seen at least some impact on their ability to pay in an inflationary environment, meaning they would have to spend more on gas and groceries.
The analogy seems worrisome for the paycheck-to-paycheck economy as a whole.
Many consumers in the United States — at 61% — have little or nothing left after paying their monthly bills. These recurring obligations include auto loans. Look at the demographics where consumers make less than $50,000 and 77% live paycheck to paycheck. A third of them struggle to pay their bills.
Continue reading: 58% of consumers live paycheck to paycheck, up from 54% a year ago
PYMNTS research also found that 13% of all consumers – an estimated 33.5 million people – spent more than they made in the last 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 and struggling to pay their bills, that cash cushion has fallen from a peak of more than $4,000 to a recent $2,460.
See more: Savings cushion dwindles for lower-income paycheck-to-paycheck economy
Given the choice of putting food on the table and leaving gas in the car—in other words, straining the dollars—consumers will check their bills. And the timely payment of the car registration can take a back seat for the time being.