Auto Manufactures Head into Strong Headwinds

Banks tighten leading practices

I was combing through the latest CPI numbers that where released earlier this week for signs of #inflation but not so talked about, #deflation. One of the biggest purchases that we make as a adults is the purchase of a car. Most Americans purchases a care via a loan. Car dealers typically sell cars based on the monthly payment and most cars are bought base on the amount of that monthly payment.

With the failure of Silicon Valley Bank, Signature Bank, First Republic Bank and small and regional banks coming under question, it got me to thinking what effects have these bank failures had on one of the largest purchase we make as adults.

84% of all car purchase in 2022 where financed.

Share of used and new vehicles with financing in the United States from 2017 - 2022

84% of all cars you will see today are most likely to be on a payment plan. Which brings me to this question. If the banks are insolvent is their assets where valued in market to market pricing today, how willing are they to lend as they have from 2017-2022?

Below is a chart based on the Net Percentage of Domestic Bank Tightening Standards for Auto Loans. From the end of 2022 the lending elasticity of the bank lending has tighten by 289%. If you have bank credit, chance are you are going to pay upwards of 18% for a car loan.

Domestic Auto Inventory’s are up 62.8 percent year over years from March 2023 back to March 2022.

What kind of effect will this have on auto manufactures in the 2nd quarter of 2023 and beyond? I suspect a great deal. As we approach June and the #DebtCeiling issues along with regional banks such as #PacWest and #WesternAlliance under pressure, I expect the high end or “popular” cars will be the first to show signs of slowing sales. #Tesla, #Ford and their F150, F250 along with the European car manufactures such as #BMW and #MercedesBenz are likely to feel the pain of bank lending tightening.

What’s the opportunity?