VW Shifts Loans To Wells Fargo, Sticker Shock is Real, Auto Debt Surpasses Student Debt

The Automotive Troublemaker w/ Paul J Daly and Kyle Mountsier

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We’re brimming with energy on this Tuesday morning, as we discuss VW’s decision to originate its US auto loans through Wells Fargo. Plus we talk about the growing gap between car buying expectations and car buying reality and how auto debt just continues to grow.

Show Notes with links:

• Volkswagen is ceasing to originate U.S. auto loans for Audi and VW through its in-house finance division, Volkswagen Financial Services (VWFS). Starting in April, Wells Fargo will take over this responsibility.
  • Wells Fargo will be responsible for processing all loan applications, underwriting, and servicing loans for VW and Audi customers.
  • VWFS will shift its focus to consumer leasing, usage-based products, and new mobility solutions, aligning with Volkswagen Group’s broader growth strategy in the U.S. market.
  • The transition is part of a "multi-year co-branded agreement" aimed at offering improved retail financial solutions for VW, Audi, and Ducati.
  • VWFS will continue managing current loans on its books after the April transition.
  • Ernst Jan van Eijkelenburg, CEO of VW Credit: “This is a union of great strengths... supporting our brands, dealers, and customers.”

• A new report from Edmunds highlights the growing disconnect between what car shoppers want to pay and the prices they’re encountering in the market today.
  • According to Edmunds, the average trade-in age for new vehicles is six years, meaning many shoppers returning in 2023 last bought in 2018.
  • 64% of used car buyers aim to spend under $20,000, and 50% target $15,000 or less, but only 5% of transactions were below $10,000, with the average used car costing $26,936. Similarly, 48% of new car buyers want to spend $35,000 or less, but the average new car price in July was $47,716, with almost no vehicles under $20,000.
  • Over 73% of respondents have delayed buying a vehicle due to high prices, 62% due to high interest rates, and more than half are cutting other expenses or working extra hours to afford one.
  • Jessica Caldwell, Edmunds' head of insights: "Consumers are likely being forced into trade-offs, selecting different brands, older vehicles, or even postponing purchases.”

• A new report from the Financial Times highlights the growing burden of auto loan debt, which now accounts for 9% of household debt, second only to mortgages and surpassing student loans.
  • Auto loan delinquencies are nearing record-high levels set during the 2009 financial crisis, as many struggle to keep up with large payments.
  • Buyers who purchased vehicles during the COVID-19 pandemic at inflated prices now face significant negative equity, owing more than their cars are worth as values decline.
  • While fewer prime borrowers are losing their vehicles compared to 2009, auto debt continues to swell, with total automotive debt reaching $1.6 trillion as of September 2023.

Hosts: Paul J Daly and Kyle Mountsier
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