By Ray Birch
BOSTON—One analyst believes the new Trump administration will boost the economy and bring an unexpected benefit to lenders this year—greater growth in new car sales.
That same analyst said consumers also believe relief from healthcare costs is on its way, which could further encourage people to borrow.
Prior to December data many experts predicted final new car sales numbers for 2016 would show slowing growth over 2015, and that the trend would continue in 2017.
But Christine Pratt, senior analyst at Aite Group, said December car sales numbers walloped 2015 year-end sales, indicating that demand is still there and that it is being driven largely by consumer confidence in the Trump administration.
“Consumers bought more cars this year than last year, and they made that happen pretty much all in December,” said Pratt. “Sales in December were up more than 50,000 units year over year—about 57,000 more cars sold this year in December than last year.”
Turnaround
Pratt acknowledged automotive industry experts had been talking about declining sales, pent-up demand slowing, and that lenders were being urged to pay attention to the trend and make adjustments.
“Then all of a sudden everything turned around post-election,” said Pratt. “To me, it seems to signal a sense of growing consumer confidence. People who have been holding onto their money are less concerned about the future.”
Pratt believes that due to the new president and the Republican Congress, consumers are expecting lower taxes will lead to larger paychecks, and that they further believe relief from rising healthcare costs, such as prescription drug prices and hospital charges, is on its way.
Meanhile, Pratt said that mounting credit card debt—which CUToday.info has reported on extensively and which now stands at about $1 trillion in outstanding balances, according to WalletHub—is being driven more by healthcare expenses than uncontrollable spending.
“In my opinion, it is the rising cost of healthcare that is contributing the most to card balances,” said Pratt. “Many people are just trying to keep up.”
But rising interest rates, with two to four hikes expected from the Federal Reserve this year, could challenge the ability of high-balance cardholders to stay current, said Pratt.
“But if problems (with delinquencies and charge-offs) arise, the major card companies and other issuers have done so well in recent years that they should be able to absorb this,” she said, “I think it would be a blip on the radar to them.”
'Unscoreables'
Lenders this year, said Pratt, should be leveraging strong data analytics to reach down deeper into credit scores. Pratt said that savvy lenders are going after a group being called the “unscoreables,” those who don’t have a credit score but are good borrowers.
Pratt emphasized this group is sizeable.
“This is not simply the underbanked,” she said. “Maybe it’s a Baby Boomer who has not had the need for credit in a long time. These people are turned down for a loan because they don’t have any real credit. They pay a high rate because they are scored as subprime, but really should not be categorized as subprime.”
Pratt said there are millions of consumers who fall into the low credit score category and need help.
“They won’t sign up to be penalized with subprime rates,” she said. “Banks and credit unions are trying to figure out who these unscoreables are and make offers to them. They are saying, ‘Wait, there is this whole group of people in this category who are a good risk. They are in the wrong category. Let’s look at them.’”