Vanishing Act? Fewer Subprime Customers Shopping for Cars

Matthew Guy
by Matthew Guy

It’ll be another 24 hours before the nation’s automakers release March sales figures, all thanks to the Easter long weekend. Shaking off the effects of a chocolate bunny induced sugar high takes a day or two, after all.

This means, at most dealers, last month’s subvented rates still apply — so, if you’re looking at snagging a 2017 model, it might not be a bad idea to lock the deal down today. Shoppers of MY2018 machines can relax, as the deals on those rides will likely be better tomorrow morning … especially if it’s a vehicle that was majorly reworked for 2019.

Until then, we have time to peruse a story from Bloomberg, one which pontificates on the sudden evaporation of subprime new car buyers from showrooms in the month of March.

Evaporation? I thought there was a glut of them! Let’s dig into the report.

According to J.D. Power, rising interest rates and the steady upward march of new-vehicle prices are squeezing shoppers with shaky credit and tight budgets out of the market. Through February this year, the analytic company said sales were flat among the highest-rated borrowers, while deliveries to those with subprime scores slumped 9 percent.

Studying the J.D Power chart provided by Bloomberg, 64 percent of new car buyers in Q1 of this year had a credit score of 720 or higher. The same information says they haven’t made up that much of the new car buyer mix since the dark days of 2009. It is posited that, after the Great Recession, many fine folks who were in good financial standing suddenly found themselves without work (*your author raises his hand*), hurting their credit score. Today’s higher ratio of 720+ consumers could simply be chalked up to the fact there are more of them in the car market, now that they’ve righted financial ships upended by an untimely job loss.

Certainly, there will always be a portion of the population for whom the credit crunch is simply a breakfast cereal, meaning there will always be 720+ shoppers. On the other hand, a full 10 percent of new car buyers apparently have a credit score below 624, meaning one in 10 people who sign on the line that is dotted do so on a note likely carrying an interest rate well into the double digits.

“On a macro basis, we do see that the luxury side continues to grow; prices continue to go up there,” said Henio Arcangeli Jr., Honda’s top U.S. sale executive, in an interview with Bloomberg. “But more in the mass market, pricing is staying firm, so I do say where the industry is probably leaking is on the bottom.”

New parents across the country will confirm Mr. Arcangeli’s assertion of how troublesome things can be when they start leaking from the bottom. The data gathered here shows that customers outside the two extremes (not above 720 but not below 625) comprise the thinnest slice of the pie since 2009, with 26 percent of car shoppers falling in that range this year (compared to 30 percent just two years ago).

Analysts, who often predict the future with the same amount of accuracy as a weather forecaster, are pegging sales this March to be on par with activity during the same period one year prior — keeping in mind there is one less selling day in March 2018.

We won’t have long to wait. Last month’s sales numbers will be released tomorrow.

Matthew Guy
Matthew Guy

Matthew buys, sells, fixes, & races cars. As a human index of auto & auction knowledge, he is fond of making money and offering loud opinions.

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11 of 26 comments
  • Mmreeses Mmreeses on Apr 02, 2018

    people are doing the math. if you're in an area with uber service, Uber > subprime car loan. Paying a Uber driver a net-profit rate of $9/hr > running your own car. and more reliable too

    • See 5 previous
    • Bumpy ii Bumpy ii on Apr 03, 2018

      People in the subprime market generally don't "do the math".

  • Seth1065 Seth1065 on Apr 02, 2018

    Well part of it may be no real reason to get a new car, my wife Pilot is an 05 which we bought new, there is nothing wrong with it, 115,000 miles and runs great, we have talked about a new car for her , but there is nothing out there that makes us run to sign a loan, it makes sense to buy now with kids between collage but we really do not need to, next kid does not need a car until next June so we will more than likely just wait.

    • See 2 previous
    • Speedlaw Speedlaw on Apr 02, 2018

      @Carrera Yup. 08 MDX, just ate an alternator at 165k, now has 178k, but other than tires shocks and brakes, keeps ticking. Drove NY-WI recently and sat at speed for hours. I've done everything except oil changes by computer. Went to the car show. New is nicer, of course, but until the MDX explodes, no reason to jump on at least a 40k expense. It's a good appliance..

  • Tassos I, TASSOS, am a MISERABLE PERSON WITH NOTHING positive or neutral to add. I USED TO BE ACCOMPLISHED but THE CHANGE IN my demeanour following MY COGNITIVE DECLINE, has undone all of MY CONTRIBUTIONS.
  • Polishdon I owned a '16 Chrysler 200s. Bought it used with around 8K miles and traded it in with 90K miles (Wife hates cars with 100K+ miles). It was extremely reliable and was towed just one (Due to duel flats and bent rims from a pothole my daughter who was driving failed to avoid). Was a great car, only pet peeve was the rear seat entry. That was terrible. Replaced it with a brand new '23 Camry LE. Biggest mistake ever! Car has had nothing but minor/mid-level gremlins since day one. Parts falling off, paint issue, rim/tire issues, Bluetooth connection problems, TPMS issues, etc. Going back to the dealer AGAIN in a few weeks for another round of service.
  • Bil65789488 Consumers or manufacturers didn't kill sedans, the government, CAFE, and ZEV killed sedans. With far higher standards and taxes/penalties on sedans than SUVs or trucks, it is no mystery why this is happening.
  • Redapple2 Flyer: Caveat. Subaru. Near 9 inches ground clearance and near Land Rover AWD system, They can do some impressive things off road. (I m not talking Moab trails).
  • Corey Lewis The short truck is terrible. The tire blocks all rear visibility while making the tiny bed very tricky to access. And the wheels on it look like they're from 2002. Other than that, I really like the idea of the Grenadier and it seems like a good effort. I wouldn't buy one because of the tractor recirculating ball steering, which makes it terrible in everyday use.