ONTARIO, Calif.—What has really driven credit unions’ rising share of the auto loan market higher is not so much banks exiting the market as it has been CUs getting better—and faster—at making car loans.
Tony Boutelle, CU Direct president and CEO, made that point to CUToday.info as he noted just how credit unions are doing a better job today.
“I would not say banks are pulling back as much as I would say credit unions are winning,” said Boutelle.
Credit unions’ market share increased from 23% to 26% in Q3 2017. Bank market share was down by over 5.5 percentage points to 37%. In addition, CU Direct credit unions as a group have become the No. 1 lender in the nation, ahead of major lenders such as Ally Bank and Wells Fargo.
“Look closely and you will see that credit unions are really building a core competency in both direct and indirect auto lending,” said Boutelle. “For one, they have gained a great deal of respect among auto dealers as community-based institutions they can trust. More dealers like keeping their deals local as opposed to sending them to some bank across the country.”
Most important, said Boutelle, is credit unions are funding loans faster.
“Faster decisioning—our technology at CU Direct is helping here a great deal,” said Boutelle.
Boutelle believes that in many instances credit unions are beating banks in turning around a loan. But he emphasized it remains important for credit unions to continually rethink their lending practices.
“Review how you are doing in different areas—how fast you are making decisions, how fast are you funding, how quickly are you responding to inquiries,” said Boutelle. “I’d just encourage credit unions to continue to review what they're doing today and compare against benchmarks, which we provide at CU Direct.”
Boutelle said that CU Direct data show the percentage of CU Direct credit union loan apps that are instant-decisioned has been steadily climbing in recent years, now above 25% of all applications.
“I think that number should go to 50% or higher,” he said. “We know that if you make a decision instantly versus having the dealer wait 30 minutes to three hours, you have a 90% greater chance of making that loan.”
Looking ahead to the auto loan market for the rest of 2018 Boutelle said he sees a “stable environment.”
“Projections say new car sales volume will go down slightly this year. In 2016 it was 17.6 million units and last year I think we came in around 17.2 million,” said Boutelle. “For 2018 projections are around 16.5 million. But used cars are expected to be up a bit, maybe by 500,000 units. So in the grand scheme of things, not a big difference.”
Boutelle called the expected lower volume “insignificant.”
“When you think about the overall volume, 16.5 million new cars sold is still a big number,” he said. “It’s still in the top five years in the history of U.S. auto sales. The market is not coming crashing down, like we saw in 2009, when nine-million units were sold.”
Leading Used Lender
The fact that used car sales will pick up not only helps keep overall auto lending volume steady, but works well with credit unions—the leading used car lender in the U.S.
Like other analysts, Boutelle sees used car sales increasing this year due to the large number of off-lease vehicles returning to the market.
“This is a good opportunity for credit unions, as late-model used cars is a sweet spot for our industry,” Boutelle said.
But all that said, Boutelle repeated his emphasis on how credit unions, regardless of how well they are doing, can’t stop innovating and looking for ways to improve.
“One of the things we need to do is not set and forget how we are making loans. Never just be happy with how it’s being done today, because it’s a very competitive market,” said Boutelle. “I do think credit unions are wining in a big way, but that does not mean banks won’t be coming back. So my advice is to keep honing your craft.”