Add the rising popularity of ride-sharing services such as Uber and Lyft to the challenges faced by auto lenders.
Nearly 40% of Americans, including 51% of people between 18 and 29, used a ride-share service in 2018, according to a study by the Pew Research Center. That compares with just 15% three years earlier.
A shift to paying for rides could cut into a car-buying market that is already in decline, industry experts said. Declining sales could mean more competition for a dwindling number of lending opportunities.
Auto sales through Sept. 30 are down 0.8% in 2019 from a year earlier, according to the U.S. Bureau of Economic Analysis. The average price of new vehicles increased by 4% in the third quarter from a year earlier, to $33,321, according to data from J.D. Power & Associates.
Lyft estimates that more than 300,000 riders have given up their personal cars to use its service. And nearly half of Lyft's riders said they used their cars less last year because of the company.
"It's just one more tough market for consumer products," said Joseph Bower Jr., president and CEO of CNB Bank in Clearfield, Pa. He said executives at the $3.4 billion-asset CNB have discussed the impact that ride sharing could have on auto sales.
"Our thoughts are that cars will still be owned but used much less and therefore last much longer with each owner," he said. "So long-term sales will lessen."
Younger customers, who are seemingly more comfortable relying on Uber and Lyft, are less likely to consider buying cars, Bower added.
Lenders are still trying to understand how much of an impact ride sharing will have on auto lending, said Shane London, president and CEO of Deseret First Credit Union in West Valley City, Utah.
"Personally, I believe that it may be impacting some larger urban markets, but to what degree is challenging to assess," London said.
London said he is seeing the impact of ride sharing on apartment and condominium projects around Salt Lake City. Many apartment complexes have more units than parking spots.
"The thought process is that those renting these units aren’t dependent on private vehicles, so parking availability isn’t a priority," London said. "The takeaway for me ... is that those living in these areas are utilizing ride sharing or public transportation."
It is less clear to London how much ride sharing is hurting auto lending.
"Personally I believe that it may be impacting some larger urban markets, but to what degree is challenging to assess," he said.
The shift could convince more small banks to abandon auto lending, a business that many left due to low rates and challenges valuing the underlying collateral.
"They can’t compete with the low yields that others provide and it's hard to make profit," said Vincent Hui, managing director at the bank consulting firm Cornerstone Advisors.
Auto finance companies, credit unions and large banks like JPMorgan Chase and Capital One Financial are among the nation's top auto lenders.
Linda Koch, president and CEO of the Illinois Bankers Association, said her group has not yet heard from its members on whether ride sharing is hurting car purchases or auto lending. Still, she said, community banks are disadvantaged by the way car loans are now being made.
"A banker recently said that formula lending, as opposed to relationship lending, is not the community bank’s model," she said.
Credit unions, due to their tax-exempt status, have been able to drive down rates for auto loans, said Christopher Williston, president and CEO of the Independent Bankers Association of Texas.
"I think it’s fair to say that nothing but a leveling of the playing field is going to bring community banks back into this space," Williston said. "The expense incurred by banks to put an auto loan on the books is hard to justify given the low margins."
Many community banks make auto loans only to existing customers.
"Even those are hard to do because it’s very difficult for us to compete against the convenience and terms" of other lenders, said Stephen Varckette, president and CEO of the $420 million-asset Andover Bank in Ohio.
