How A Challenging Economy In 2020 May Impact Lenders

The U.S. auto industry has been fearing it may see sales fall after several years of strong activity and consumer demand. However, those fears will most likely fail to materialize in 2019, as the latest industry figures show an annual sales pace of 17.16 million projected for the year, just slightly above the 16.8 million mark forecast by many back in January.

Despite this end-of-year outlook, dealers and lenders should remain diligent and plan for a variety of different scenarios.

According to Barclays, there is a 25% to 30% chance that a recession could materialize for the U.S. economy at some point in 2020. This outlook is based on how the stock market and manufacturing activity has fared recently. If the market continues to face a bumpy road ahead, that might mean potential car shoppers may turn more conservative in their decision to plan their next vehicle purchase.

Because of these outlook predictions, some dealers are proactive in evaluating various activities at their locations.

Dealers Are Already Feeling a Slowdown

A recent survey conducted jointly by Equifax and NIADA found that only 30% of independent dealers are expecting economic conditions to improve during the third quarter of 2019, down from 38% in the first half of the year, and 42% in the fourth quarter of 2018.

Similarly, only 18% said they plan to expand their business in the third quarter, down from 33% in the first half of 2019.

When it comes to retail sales, only 37% of independent auto dealers said they anticipated their dealership’s retail sales to grow during the third quarter, down from 51% in the first half. Additionally, many dealers expect store traffic to decrease. In fact, only 38% expect traffic to increase during the third quarter compared to 46% who expected traffic increases in the first half.

How A Slowdown Affects Lender Portfolios

Lenders should take note as well and are encouraged to analyze their portfolio makeup to help minimize risk while remaining cognizant of any possible growth opportunities. Access to the right data is key here, particularly as dealers will need to make smart inventory acquisition decisions, and lenders will want to modify portfolios and credit risk accordingly.

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