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A Driving Force

With strong sales driven by low interest rates and on-time payments, 2011 finished with a bang.

April 2012, F&I and Showroom - Feature

by Melinda Zabritski

By all accounts, 2011 was the best year for auto retailing since 2008. A strong showing in November and December pushed annual sales to about 12.8 million units for the year. Driving consumers off the sidelines were interest rates, which, coincidentally, reached their lowest average in three years.

The sales surge didn’t stop economists from debating the strength of the recovery, but for dealers, the fourth quarter of 2011 represented one of the best times for consumers to buy a new or used car or truck in recent memory — and consumers responded.

Finance sources did their part, too. Consumers from across the credit spectrum found it easier to get an approval for an auto loan. Credit scores for both new and used vehicles dropped, while the percentage of loans made to customers with below-prime credit topped the year-ago period. Sources were even willing to make payments more affordable for consumers by extending terms out to six or seven years.

Dealers can thank consumers for the easing guidelines. Buyers continued to make loan payment on time, driving down delinquency rates and the total dollar volume of at-risk loans. In fact, the total balance of 30- and 60-day delinquent loans fell by $1.3 billion and $562 million, respectively, during the quarter, while repossession rates fell by 5.8 percent.

Finance sources are clearly on more solid ground than they were two or three years ago, which bodes well for consumers and dealers. The following is a more detailed look at what happened in four quarter of 2011.

Low Rates Drive Interest

Consumers who came off the sidelines during the quarter were rewarded, with the average interest rate for new-vehicle loans dropping 32 basis points to 4.42 percent. For used, the rate edged down 3 basis points to 8.68 percent.  

The drop in interest rates for new-vehicle loans translated into a savings of $231 for the average 60-month loan totaling $26,418. For used vehicles, the savings were much smaller, about $15 over the life of a 60-month loan.

Buyers also benefited from lower monthly payments. Sources continued to stretch out terms as the quarter wore on, and loans between 73 and 84 months accounted for 14.1 percent of all new-vehicle loans, a 47.1 percent increase from the fourth quarter 2010. For used vehicles, loans with terms between 73 and 84 months accounted for 9.04 percent of all originations, up 41.1 percent from the year-ago period.

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