By Ray Birch
MADISON, Wis.—A Jetsons-like age with flying cars may be a long way off, but the emergence of autonomous vehicles and new types of transportation services is not—and it’s changing consumers’ car-buying habits, the auto lending market and even the family garage.
That’s why one analyst is cautioning that even if widespread autonomous vehicle adoption isn’t a reality for another 30 years, today is the time to begin discussions inside the credit union about how to evolve with the changing nature of car ownership.
Ryan Foss, senior director of incubation at the Filene Research Institute, spoke with CUToday.info about what is changing today in car buying and car ownership, what’s coming, and what credit unions need to do to adapt.
Foss is leading an Filene i3 team that’s looking at autonomous transportation and how CUs can play a role.
3 Trends to Watch
Referencing a Filene research paper titled “Consumer Insights on Autonomous Vehicles as an Impending Market Disruption,” Foss pointed to three trends setting the stage for change: rising consumer ambivalence toward vehicle ownership, technologies that enable vehicle autonomy, and the market re-envisioning the rationale for electric vehicles.
Together, these trends create the market conditions that give autonomous vehicles significant potential to challenge business as usual in the automotive industry and impact the automotive lending “domain,” he said.
Foss noted that new competitors in the private transportation space have already arrived—subscription car services, ride hailing, and micro leasing or hourly rentals–with the new options changing the competitive landscape and creating opportunities for credit unions to enter the fleet market either by hosting their own fleets for their memberships or financing members’ fleets.
A ‘Fleeting’ Idea
As the new Filene report states, “Credit unions may opt to invest in fleets for their memberships, thus expanding their service offerings and perhaps using the fleets as membership entry points, as auto loans are today. Credit unions can be early movers in the banking sector by creating flexible leasing instruments: shorter duration leasing, micro fleet leasing among family and friend networks, and shared mobility loans to enable financing of consumer ride-hailing and car-sharing subscription services. Credit unions may be able to develop enhanced ways to predict residual values and/or set the most favorable lease arrangements for consumers. Conversely, credit unions may opt to extend loans and/or lease financing from three to five years, to reduce monthly payments, allowing more members access to vehicles.”
Just how large is the potential for change to a long-time credit union business model? Citing CUNA estimates, Foss pointed out auto loans make up about 35% of credit union loans or roughly $347.4 billion, rivaling mortgages (42.1%) in dollar values ($417.9 billion).
Foss emphasized the potential for new consumer habits around car ownership will have far-reaching effects on credit unions, outside of the most obvious impact.
“The impact that is certainly center stage and gets most people's attention is auto lending,” he noted. “If you look at the trends, people are getting their driver's license at older ages because they don't need transportation as they have in the past. Getting your driver’s license when you turn 16 is no longer the declaration of freedom it once was. The number of people with driver's licenses is decreasing. Continue this trend out 10, 20 and 30 years … credit unions will feel that in their balance sheets.”
But there are other concerns for credit unions as consumers’ transportation needs shift, Foss said.
“Sometimes you don't think about the impact on employment,” Foss said. “Today, transportation is one of the largest employment sectors in around 28 states in the U.S. When you say transportation, it's easy to think of taxicab drivers, Lyft drivers and things like that. But you're also talking about FedEx drivers, truck drivers, police officers, ambulance drivers, postal workers—it just branches out into all these different sectors of people. This could have a huge implication on credit union members—as well as on CUs—about what they do for employment.”
And as the gig economy expands, a good portion of it has been centered around transportation jobs, such as Uber drivers. Foss said Filene research indicates the growth of the gig economy will flip in about 13 years.
“The i3 team went down this track and started looking at all these trends around the gig economy as it relates to autonomous transportation. We said as this move toward autonomous transportation keeps growing, the growth of Uber and Lyft drivers will stall and begin to reverse. In 13 years they won’t be needed as much. Then, you will have all these gig workers now looking for another job. Could credit unions support those people through a new employment loan that would help them transition from one job to another?”
Rethinking the Garage
Shifting auto ownership needs will likely create a need for people to rework their garage space in their homes, said Foss.
“The average home in America has one-and-a-half spaces for cars. In 30 years when people aren’t needing cars or don't have as many cars, what are they going to do with all this empty space in their house? What about parking lots and parking garages? This is an opportunity for credit unions to provide remodeling loans, even call it a garage remodeling loan.”
The time to begin planning for changes that may not arrive in the market for another two or three decades is today, said Foss, pointing to Filene research that suggests a number of steps credit unions should consider, including:
- Get innovative with financing. Credit unions must be willing to experiment with new models of financing that reflect member preferences. Examples include flexible leasing instruments for shorter-term leasing and shared mobility loans to pay for carsharing subscription services, the Filene report states.
- Seek new insurance offerings. While it will likely be years until liability moves from the vehicle owner to the manufacturer (i.e., in a future where vehicles are autonomous), in the near term, credit unions will need to address the reality that fewer auto sales mean fewer auto insurance sales.
- Find ways to serve the fleet market. The growth of car-sharing/hailing services and the likely arrival of autonomous vehicles could drive a move to vehicle fleets instead of individual vehicle purchases, the report states. Credit unions could position themselves as a lender and service provider of choice for this new marketplace, the study suggests.
- Build off a heritage of cooperation and trust. "The success of the sharing economy is heavily dependent on a foundation of cooperation and trust. These two elements are baked into the credit union mission and experience and are differentiators the system should leverage when finding ways to better address changing member needs. Disruptive change in the vehicle marketplace is a reality that credit unions won’t be able to avoid. But a commitment to being knowledgeable, proactive, and agile will go a long way toward helping the system weather uncertainty,” the report states.
“You have to start planning as an organization for the reality that some of these things will happen, and you've already seen some of the shift occurring,” said Foss. “For example, Volvo has started a subscription service. It's already happening now. It's not the Jetsons yet, but there are new alternatives based on the new economy. You need to start having these discussions at the board level and at a very high strategic, senior team level.”