ONTARIO, Calif.—Credit unions continue to improve their posture among auto lenders, capturing one out of every four auto loan originations last year, CU Direct reported.
But inside that success are additional opportunities to not only make more loans through greater use of auto decisioning, but also add to the bottom line by pricing risk higher, the company stated during its latest State of the Auto Lending Market webinar.
Jose Torres, CU Direct market research analyst, said credit unions had an exceptional 2015, and in claiming 24% of all car loans CUs increased their market share by a full percentage point over 2014. In terms of market share, CUs are now the number-two lender type, ahead of captive finance companies, grabbing 20% of the market, more than a percentage point ahead of captives (18.8%) but trailing banks (37.4%).
Attention to indirect played a large role in CU gains, with indirect accounting for $132.3 billion in outstanding balances in Q3 2015, up from $109 billion a year earlier.
CU Direct CUs Doing Well
CU Direct credit unions performed, as well, acquiring more than one million (1.056 million) indirect loans in 2015, a record for the company.
“That was 12.9% growth, noted Torres, adding that combined, CU Direct credit unions now are the third largest auto lender behind Ally and Wells Fargo.
Overall, last year new car sales set a new record at 17.5 million units. Projections call for about 17.7 million this year.
Torres emphasized, as have several analysts, that post recession trucks and SUVs are dominating new sales—trucks accounted for 61% of sales in December.
Credit unions last year financed more pickups (15.8%) and entry-level CUVs (15.8%) than any other vehicle type. Banks had a similar mix, with finance companies selling mostly small economy cars (29.2%).
With used sales, trucks lead the way as well for credit unions, comprising 16.2% of their deals last year, making them the largest mover of used pickups by lender type. Banks came in second at 14.6%.
Leasing continues its rapid rise, accounting for 27.3% of all new cars sold last year. Torres emphasized leasing’s growing appeal, noting that in 2012 leasing accounted for 20.1% of all new cars sold. Torres said to expect leasing to continue to grow, adding, however, that leasing may have a difficult time moving above the 30% share mark.
CUs Prime Focused
Credit unions were heavily focused on prime borrowers last year, but are addressing near prime, Torres said. By Q3 2015, 50% of credit union deals were written to prime borrowers, 17% to super prime, and 23% to near prime. Only 9% of credit union originations went to subprime, and 1% to deep subprime.
But credit unions are underpricing their risk, especially for lower credit scores, noted Torres. When comparing CU Direct data to Experian lending data, CU pricing is far below market averages for credit categories. The comparison shows that on average credit unions charge 330 BPs less in near prime, 652 BPs less in subprime, and 641 BPs less in deep subprime. Overall, credit union loans average 404 BPs less than the overall market when combining all risk categories.
Torres stated that CU direct data also indicates that credit unions using auto decisioning are faring the best, closing more loans. “When credit unions automate more of their decisioning they process more loans,” said Torres. “System approved applications provide faster decision turnaround leading to superior funding performance.”