In 2025, quickness and responsiveness have become the hallmark of innovation. Whereas sending someone money usually required a trip to the bank, it now only requires a phone and an internet connection. Similarly, if someone wanted to shop for a new car, they could ditch showing up at the dealership in favor of a virtual tour of a vehicle right from the comfort of their home. In fact, 7% of vehicle buyers purchased their vehicle without being physically present. Another 43% completed at least some of the vehicle buying process online.
Now that consumers have options across the country and online, being a local dealership is harder than ever. This stresses the importance of providing positive experiences to customers at your dealership even more than ever. Statistically, 72% of consumers would visit dealerships over alternatives if the buying process was improved. Similarly, 54% of consumers would buy from dealerships with a preferred experience, even if the price at the dealership isn’t the lowest price offered to them. But what are some other ways that buying a car has changed in recent years?
Year after year, financial pressures have seemingly mounted for consumers across the board. Student loans have decreased from 37.1% to 29% since 2014, marking a 21.3% decrease. In its stead, credit card debt has seen a slight increase from 21.8% to 23.9% in the same time frame. The largest increase is in auto loan and lease debt. It grew by 14.7%, changing the share of total consumer debt from 31.3% to 35.9%. This nearly 15% growth in the past decade has ballooned the outstanding balances for auto loans and leases to $1.7 trillion. In fact, in just the past year alone this number has grown by a whopping 2.3%.
This has pressured many consumers to become delinquent on their auto payments. An auto delinquency is categorized as any auto loan or lease with a payment that is 60 days past due or longer. Of the total $1.7 trillion, 1.5% of that figure is delinquent as of November 2024. This figure has grown exponentially higher in recent years and saw a 4.5% increase in just the last year alone. Unfortunately, this has pressured certain generations more than others.
Older generations, namely Baby Boomers and Generation X, account for the lowest percentage of auto delinquencies at .7% and 1% respectively. On the other hand, the percentage of auto delinquency seems to grow the younger they get. An estimated 1.7% of all Millennials auto loans and leases are delinquent, while 2.3% of all Generation Z auto loans and leases are delinquent as of 2024. In parallel to this trend, the percentage of borrowers has also taken a turn for the worse. Prime and near-prime have both seen year-over-year shrinkage. Simultaneously, subprime and deep subprime loans and leases have seen year-over-year growth of 4.8% each.
Finally, the underlying asset of auto loans and leases is the final factor driving the delinquency rate higher. Since 2016, the average vehicle price increased by 34% from around $34,500 to just under $48,500. At the same time, the average new vehicle interest rate for a 60-month loan shot up from 4.26% to 7.57% or experienced a 56% increase. The culmination of all these factors is the generation of all new auto loans and leases decreasing by 1.6%, or $9.2 billion.
In order to circumvent poor financial history or proper credit checks, certain individuals have started utilizing synthetic identities (Syn ID’s). Since 2020, the prevalence of Syn ID’s has increased 59% annually. This has led the risk of a Syn ID on a credit application to shoot up from 5% in 2019 to over 8% in 2023. Fraud via these Syn ID’s have already resulted in $7.9 billion in losses in 2023 alone. Moreover, customers with a Syn ID have a 3 to 5 times higher delinquency rate. So how can you protect yourself from being a victim of Syn ID’s?
Fortunately, companies like Equifax provide Know Your Customer (KYC) tools which allow you to proactively analyze the financial status of your clients. They offer insight into the buying power of the client before the customer has agreed to any terms in the dealership. If you want to make sure your dealership is not falling victim to Syn ID’s, taking advantage of KYC technology from Equifax is the best way to make you know who you’re dealing with.
