As down payments climb, likelihood of another federal stimulus dims on Capitol Hill

Edmunds shared data with SubPrime Auto Finance News that average down payments in August climbed by more than $400 on new-car deals and by nearly $700 on used-vehicle transactions.

Experts and surveys both pointed to how previous federal government stimulus efforts helped consumers spend on big-ticket items like a vehicle. But the prospect for more capital injections directly to consumers took a significant hit this week as Comerica Bank chief economist Robert Dye projected when he said in the institution’s September economic outlook, “We may already be at the point where meaningful fiscal policy may be out of reach due to the rancorous political environment.”

What some lawmakers dubbed a “skinny” assistance package failed to generate enough approval votes on Thursday in the U.S. Senate to move forward, drawing a stinging reaction from Majority Leader Mitch McConnell who went on Twitter to say: “Every Senate Democrat just voted against hundreds of billions of dollars of COVID-19 relief. They blocked money for schools, testing, vaccines, unemployment insurance, and the Paycheck Protection Program.

“Their goal is clear: No help for American families before the election,” McConnell tweeted.

Had federal lawmakers been able to reach an agreement, the financial assistance to consumers could have helped vehicle sales. As mentioned previously, Edmunds told SubPrime Auto Finance News that the average down payment for a used vehicle financed in August came in at $3,353, up from $2,655 a year earlier. On the new-model side, the average down payment rose from $4,052 to $4,458

“For auto sales, particularly for used, any type of stimulus, whether it’s what we’ve seen since the pandemic or any type of tax refund, seems to gives sales wind behind them,” Edmunds executive director of insights Jessica Caldwell said in a phone conversation.

“I think whenever there is some sort of crisis, people are shocked,” Caldwell added later in the conversation. “The flip side of these situations is some people believe it’s the perfect time to make a big purchase because of the depressed market. We certainly saw that in April and May when automakers were offering those blockbuster deals like 0 percent for 84 months. I think with rates continuing to be relatively low, I still think people think it’s a good time to buy a car because they can take advantage of the rates.

“I think it’s interesting how these crises turn into buying opportunities for people who feel good about their own financial situation. We definitely do people see looking for a deal on the used-car side,” she went on to say.

Edmunds reported that the average interest rate on used-vehicle financing originated in August softened slightly to 7.92% from the year-ago reading of 8.50%. The average amount financed moved a bit higher to $23,081 from $22,252.

Along with finance companies taking on risk, Dye described the potential economic peril that might be ahead, especially as federal lawmakers bicker.

“A stricter approach to unemployment benefits, in the face of a massive new wave of unemployment, would have a chilling effect on the economy,” Dye said. “In such a case, we would expect that consumer spending would be reined in for lower-income households and for households with unemployed workers. Consumer confidence would fall as unemployment increased. The loss of purchasing power and loss of confidence would hamstring the consumer economy.

“A condition of extended demand destruction and curtailment would contribute to a huge capacity overhang for many businesses. Thus, the effects of the consumer squeeze would eventually be felt upstream in many heavy industries that are not directly linked to consumer spending. State and local tax collections would be further constrained, requiring deep cuts in government spending. Truly, the potential for a double-dip recession of historic magnitude is sobering,” he went on to say.

Edmunds' in-depth auto financing data can be found below:

Source: Edmunds