ONTARIO, Calif.—Major banks retreating from subprime auto lending is not a sign serious delinquency issues are ahead with low-FICO borrowers, according to CU Direct.
Instead, it is emphasizing the pullback is an opportunity for credit unions to further increase market share gains.
As CUToday.info recently reported, during the company’s Drive ’17 conference, CU Direct told attendees that credit unions continue to gain a greater share of the auto lending market, now holding more than 20%. CU Direct credit unions, as a group, are the No. 2 lender in the nation in total loans behind Capital One Auto Finance.
Those gains, CU Direct stated, are coming in part from banks pulling back on subprime lending.
“There are a lot of bright spots for credit union auto lending in 2017, even though the overall state of the economy may be uncertain,” said Michael Cochrum, VP of analytics and advisory services, during the company’s latest State of the Credit Union Auto Lending Market report. “Credit unions today are the only major lender that is increasing the amount of auto lending they are doing over 2016, with the exception of the captives.”
CU Share Up 4%
Credit union market share in Q1 increased by 4% over the previous quarter, while bank market share in the same period fell by more than 5%. Captives are up 14%.
Reports have indicated banks, such as Wells Fargo, are pulling back from subprime due to delinquencies rising in this credit tranche during the past year. After pulling back during the recession, banks began to grow their auto lending portfolios again largely due to their attention to lower-score borrowers—who until recently had not been behaving like risky subprime loan holders.
“A lot of the bank pullback is blamed on subprime,” said Cochrum, who noted that the banks’ pullback includes prime borrowers as well. “If you read the press reports you see that the banks have rising delinquencies and losses, and I think they are trying to get a handle on what is going on. So they slow everything down and see where the problems are. I would not say it’s retreating, but instead a slowdown to check their strategies. I don’t think the banks see some sort of disaster looming.”
Cochrum added that much of the captives’ growth in the past year is due to increased incentives on new cars. He said the carmakers are increasing incentives to keep inventory moving on dealer lots that are flush with vehicles.
With new car sales projected to be flat or possibly down this year, Cochrum said to expect even more manufacturer incentives on retail sales and leases.