By Ray Birch
ONTARIO, Calif.—Credit unions now claim about 22% of the overall auto lending market, a percentage that has been increasing despite the slowdown in new vehicle sales.
That is a sign of the strength of credit union auto lending, according to CU Direct, which also says credit unions may have to fight harder for the business next year.
“Credit unions are growing auto lending because they are taking more share of the market,” said Michael Cochrum, executive lending advisor at CU Direct, during the company’s latest State of the Credit Union Auto Lending Market report. The last time credit union share was higher was early in the recession when many banks exited the market, he said.
Credit unions are growing new car loan originations by about 8%, while all other lenders’ growth rates are negative. Banks are down about 1%, captives are off about 10% and finance companies are down approximately 8%.
CU Direct CUs
How well credit unions are performing is also reflected in the number of loans originated by CU Direct credit unions. As CUToday.info has reported, CU Direct credit unions, collectively, are now the second-largest lender in the country in number of loans (825,712). At the close of Q3, CU Direct credit unions have grown their number of loans by 15.4% year over year, easily the largest growth rate of any of the top ten auto lenders in the nation.
CU Direct is on pace to process more than $30 billion in loans in 2016. “Another record year,” said Cochrum.
Cochrum said that the decline in new cars sales, off 2.3% year over year for the period August-October, is not a surprise to anyone, as analysts have predicted that the pent-up demand for new car sales following the recession is waning.
Cochrum said that given the new environment in which new car sales growth is declining, it’s imperative that credit unions find ways to take more share.
But he cautioned that in 2017 CUs may face tougher competition from banks and captives as everyone fights for a smaller piece of the pie. He expects banks to become more aggressive and automakers to offer larger rebates, some of which is already occurring. Cochrum also said that with new car sales slipping that dealers will feel a sense of urgency to close sales.
Cochrum said that credit unions can’t just rely on lower price to get indirect loans and business directly from members. He recommended that CUs review their policies and guidelines, and improve their service levels to members and dealer partners, especially with speed of loan approval and funding.
“You will have to up your game,” Cochrum told credit unions. “Lenders will be fighting for a share of a smaller new car market next year. If you don’t up your service level, other lenders will. It’s time for us to make some changes, as the new car sales business in 2017 won’t be the same as it was over the last three years.”
For used cars the situation is somewhat different. CU Direct reported that used car sales year over year are up 2.88%. He noted that credit unions hold 24.4% share of the used car market and that 73.2% of CU loans are for used vehicles. In addition, due to the growth of leasing a lot of late-model used cars are hitting the market and catching the attention of buyers who want a relatively new car, but at a price $5,000-$10,000 below original sticker.
“I think with the trajectory credit unions are on they can really gain share on the used side,” Cochrum said.