Vanishing Act? Fewer Subprime Customers Shopping for Cars

Matthew Guy
by Matthew Guy
vanishing act fewer subprime customers shopping for cars

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.

Comments
Join the conversation
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..

  • Jim Bonham Full EVs are not for everyone, they cannot meet all needs. Hybrids do a much better job of providing the benefits of EVs without most of the drawbacks. I have a hybrid sedan with plenty of room, plus all the bells and whistles. It has 360 hp, AWD, does 0-60 in just over 5 sec.(the instant torque is a real benefit), and I get 29 mpg, average. NOT driven lightly. I bought it used for $25k.Sure, it's a little heavier because of the battery, motor, etc., but not nearly as much as a full EV. The battery is smaller/lighter/cheaper and both the alternator and starter motor are eliminated since the motor assumes those functions. It's cool to watch the charge guage show I'm getting energy back when coasting and/or braking. It's even cooler to drive around part of the time on battery only. It really comes in handy in traffic since the engine turns off and you don't waste fuel idling. With the adaptive cruise control you just let the car slowly inch along by itself.I only wish it were a Plug-in Hybrid (PHEV). Then, I'd have A LOT more EV-only range, along with even more of that instant torque. The battery would be bigger, but still a fraction of the size of a full EV. I could easily go weeks without using much, if any gas (depending upon my commute) IF I plug it in every night. But I don't have to. The gas engine will charge the battery whenever it's needed.It's just not as efficient a way to do it.Electric companies offer special rates for both EVs and PHEVs which lower your operating cost compared to gasoline. They'll even give you a rebate to offset the cost of installing a home charger. You can still get federal (up to $7,500, plus some state) tax credits for PHEVs.What's not to like? My next daily driver will be a PHEV of some kind. Probably a performance-oriented one like the new Dodge Hornet or one of the German Hybrid SUVs. All the benefits, sound, feel, etc., of a gas vehicle along with some electric assist to improve fuel economy, performance, and drivability. None of the inherent EV issues of cost, range anxiety, long charging times, poor charger availability, grid capacity issues, etc. I think most people will eventually catch on to this and go PHEV instead of going full EV. Synthetic, carbon-neutral eFuels, hydrogen engines, and other things will also prevent full EVs from being 100% of the fleet, regardless of what the politicians say. PHEVs can be as "clean" (overall) as full EVs with the right fuels. They're also cheaper, and far more practical, for most people. They can do it all, EVs can't.
  • Ron rufo there is in WaSHINGTON STATE
  • ToolGuy @Chris, your photography rocks.
  • ToolGuy No War for Oli.If you have not ever held a piece of structural honeycomb (composite sandwich) in your own hands, try it.
  • ToolGuy You make them sound like criminals.
Next