The business dynamics of auto lending are so good -- low interest rates, low cost of funds, low delinquencies and rising consumer demand -- that auto lenders are asking: Is this as good as it gets?
There’s no black-or-white answer. If good means easy, the answer could be: Yes, current conditions in many ways are probably as good as they’re going to get.
Competition is heating up among auto lenders. Lenders likely will have to shave margins to fight for market share. Delinquencies are bound to increase, as subprime auto lending increases. Used-car values are past their peak.
But if good means higher revenues and higher profits in absolute terms, the answer has to be: No way. Auto lending is probably years away from the next peak.
Fundamentally, U.S. light-vehicle sales are still well below the long-term growth trend. The average car on the road is more than 10 years old, according to R.L. Polk & Co. Even allowing for longer-lasting vehicles, that represents a lot of pent-up demand.
So, the question: Is this as good as it gets? is on the agenda for next month’s American Financial Services Association Vehicle Finance Conference, immediately prior to the National Automobile Dealers Association convention in Orlando.
With thousands of naturally optimistic retailers converging on Orlando, I think the answer is going to be: No way.