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Low APR Incentives Effectively Offset COVID’s Impact

19 October 2020

OEMs' aggressive incentives to offset the negative impacts of COVID-19 started soon after the pandemic spread nationally in mid-March. The focus on low or 0% APR programs moved the US market towards loans and away from leases. Of the households with a leased vehicle in the garage that returned to market this past January/February, 75% leased again, but in the March-July time period only 67% re-leased, driving up the loan mix from 25% at the start of the year to 33% in the most recent five months. Similarly, among the households returning to market this past January/February with a purchased vehicle in the garage, 89% purchased again and this metric rose to 92% in the next five months.

These low APR programs have become so popular that industry-wide metrics have changed. The average interest rate on a 60+ month loan for a mainstream 2019 or 2020 model year vehicle purchased in the four months from April through July of this year was 4.1%, down from 5.8% during the same time period in 2019. Further, the length of these loans increased significantly, rising from an average of 69 months last year to 72 months this year.

Brand teams and their captives during the pandemic have taken advantage of the low cost of money to offer enticing rates and payments that have helped to mitigate the impact of COVID-19.

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