May 19, 2020

The US car loan industry enjoys booming demand

auto industry
US auto industry
new vehicles
Bizclik Editor
4 min
The US car loan industry enjoys booming demand

Powered by continued strength in US auto sales in 2014, the car loan business is expected to enjoy another year of robust growth.

With most industry observers calling for 2014 US auto sales ranging from 16 million to 16.5 million, car loans are certain to follow this upward trend, which is fueled by pent-up demand for new cars.

During the Great Recession of 2008-2009, the worst economic contraction since the Great Depression, Americans cut back on their purchases of almost everything but absolute necessities. Perhaps hardest hit by this sharp decline in consumer spending were the real estate and auto sectors.

Auto loan portfolios grow

Although both were slow to recover from the recession, real estate was by far the slowest, a reflection perhaps of the significantly larger expenditures required to buy a home. To help fill the gap in their loan portfolios, banks, credit unions and other lenders increased their auto financing business.

In mid-December 2013, TransUnion, one of America's three largest credit bureaus, announced that it expects auto finance trends to remain positive in 2014. Specifically, the credit bureau said it anticipates bigger loans, an increase in auto leasing, and easier access to credit for auto buyers.

 Average auto debt rising

TransUnion projects that the average auto debt per borrower will grow to $17,966 in 2014's fourth quarter, up roughly $1,000 from an estimated average of $16,942 in the fourth quarter of 2013.

And the credit bureau doesn't foresee a decline in this figure anytime in the foreseeable future. "Unless there is a real shock to the economy, we don't envision auto loan debt levels to drop for some time," said Peter Turek, TransUnion's vice president of automotive.

The rosy forecast for auto financing in 2014 is not without some downside. With the overall increase in car loans,TransUnion foresees a slight increase in subprime lending, which likely will lead to an increase in auto loan delinquencies. Turek said, however, that the credit bureau doesn't expect delinquencies to reach the levels experienced during the recession and its immediate aftermath.

Past due auto loans

TransUnion predicts the percentage of auto loans past due 60 days or more will climb to 1.19 percent by the fourth quarter of 2014, compared with an estimated 1.1 percent in the fourth quarter of 2013. This compares with a 1.32 average in the fourth quarters of the years 2007 through 2012.

CUNA, the national trade association for both state and federally chartered credit unions, reported that auto loan portfolios accounted for nearly half of all credit union loan growth in 2013.

Based on credit union lending data through the end of September, the auto loan portfolio expanded by $19.7 billion, 48 percent of all new lending by credit unions.

As a percentage of all credit union loans, vehicle loans stand at 30.7 percent, up from an end-2011 low of 28.7 percent but well below the pre-recession level of 33.3 percent. This would seem to leave plenty of room for growth.

Auto lending momentum

CUNA believes car loans have plenty of momentum behind them heading into 2014. "Vehicle lending's growth is forecast to remain strong, based on sales forecasts and the growing need for replacement transportation given the record average age of the existing vehicle fleet," said David Colby, chief economist at CUNA Mutual Group.

The average age of the U.S. vehicle fleet has been increasing year over year since 2002, when it was 9.8 years for passenger cars and 9.4 for light trucks, or an average of 9.6 years for all light vehicles, according toPolk, the automotive intelligence firm that is part of IHS. As of 2013, the average age of all light vehicles still on U.S. roads had climbed to 11.4 years.

Quality of vehicles improving

The aging of America's light vehicle fleet, a trend that began well before the onset of the Great Recession, is in part a reflection of the improving quality of light vehicles, both domestic and those of foreign origin that are sold in this country.

Another factor likely to keep auto financing moving ahead at a fairly rapid pace is the likelihood that interest rates on auto loans will stay relatively low.

Mike Schenk, CUNA's vice president of economics and statistics, said that slow improvements in the labor market are likely to ensure that the federal funds rate stays roughly where it was at the end of 2013. "What that says to us is that automobile loan rates will be pretty low at least through the end of 2014," Schenk said.


About the author

Jay Fremont is a freelance author who writes extensively about a wide array of business and personal finance topics.

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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