Vehicle Financing: Servicing a Changing Marketplace

Obtaining a first vehicle used to be associated with the tangible signs of adulthood: independence, dating, mating, and finding a job. In spite of four years of growth in US-vehicle sales (see the 8 July 2013 Automotive News), the graying of America, urbanization, delayed adolescence, high insurance premiums for young drivers, and new-vehicle cost are some reasons that explain the erosion in the number of households that own any vehicle.

Since the 2008 recession, the proportion of households that own one or more personal vehicles—cars, vans, trucks, motorcycles, and RVs—has been in gradual decline. Although the number of all US economic households has increased from 107 million in 1994 to 131 million in 2012, the proportion that finance all or part of vehicle purchases remains flat: 47% in 1994 and 48% in 2012.

The good news for vehicle-finance companies is that the proportion of households that finance their vehicle purchase in total has increased from less than 20% in 1994 to nearly 30% in 2012. During the same period, the proportions of households that finance in part or pay in cash have declined. The proportion of households that lease vehicles has increased recently. Households that use home equity to pay for vehicle purchases and households that receive a vehicle as a gift have decreased in number. The trends suggest that in spite of a general distaste for debt, consumers who need a vehicle are now more likely to finance their purchase in total.

Recently, the gradual decline in vehicle ownership has been the subject of much discussion. Debate is ongoing about the causes of the decline. The implications of discussions are important for vehicle manufacturers and supporting industries such as aftermarket manufacturers, finance companies, and the travel and resort sector. Strategic Business Insights has launched a new syndicated program—Peak Car?—to address organizations' strategic needs. For more information about the program, please contact us.