Mounting unemployment during the coronavirus recession is further straining the new-vehicle market in lower credit tiers.
Geography and employment type are key when it comes to which consumers needed assistance and were exposed to job losses or job reductions. The pandemic impacted different factions of the work force than in the last recession, with jobs in entertainment, the service industry, travel and transportation being more at risk.
Some of the data lenders relied on to determine what types of jobs are considered risky won't be useful in this environment, said Dan Faggella, founder of artificial intelligence consultancy Emerj. The influx of new information likely will hinder accurate decisioning processes at auto lenders.
"It's obviously going to tilt the keel of the entire economic ballgame," Faggella said. "Because of that, our historical data about who has been more likely to pay or not pay may be much less trustable with machine learning algorithms because we're now dealing with a new normal."
Chevrolet dealer David Vara said there hasn't been much of a noticeable change in how the lenders that work with his store in San Antonio want deals constructed. But he has noticed lenders more frequently asking for proof of employment — even for customers with credit scores above 700.
"If you have more people out of work, you're going to have less sales," Vara said. "But if anything, lenders are going to be more aggressive because there's less business."
Government stimulus has boosted the buying power of many American consumers. But for those assisted by the extra unemployment cash, lenders aren't willing to take the gamble.
Wilson said several of her customers applying for auto loans on unemployment have been rejected outright by subprime auto lenders — even the larger, more established lenders.
"We're having a harder time getting them bought," Wilson said. "In this area, you have people making more money on unemployment than on the job. From the lender side, they're saying, 'What if their job's not there when they get back?' "