Credit Union Auto Lending Cruising in 2018

by Bob Child
Credit Union Auto Lending Cruising in 2018

Remember late last year, when auto loans were predicted to drive 2018 total credit union loan growth at a rate of 9.5 percent? Some doubted credit unions would achieve that growth rate, especially after a number of industry experts forecasted a 2.3 percent reduction in 2018 new car sales. The post-recession boost in new car sales had leveled off, and analysts projected 16.7 million new units sold in 2018, compared to 17.1 million units in 2017.

Flash forward, and through the mid-year point we have a strong performing market that is out-pacing analyst’s predictions.

2018 is looking even better than 2017

Vehicle sales were strong in the first half of 2018, including a big boost in June numbers. And although the market saw a down-tick in sales in August, analysts are still expecting 17 million annualized units. That’s ahead of initial projections for the year, and on par with 2017 sales.

Strong auto sales have meant strong loan demand for credit unions this year. As of June 30, the CUDL platform had funded 777,068 loans in 2018, marking a 12.3 percent increase over June 2017. Used auto loans again led the way with a 15.1 percent increase over Q2 2017, while new auto loans gained 6.2 percent. Our credit union partners, as an aggregate, remain the largest lender in the automotive marketplace for the second year in a row according to AutoCount.

CUNA Mutual reported similar credit union growth numbers: 12.1 percent growth in year-over-year auto loans as of June 30. New auto loans increased 13.8 percent and used auto loans grew 11 percent.

However, those figures don’t fully tell the story of mounting used auto loan demand. Many credit unions had to increase staffing to keep up, the report said, because used auto loan portfolios are generally 62 percent larger than new auto loan portfolios. However, used auto loans originate at roughly half the dollar amount of new auto loans.

Keys to continued auto loan growth

How can credit unions keep the momentum going during the final quarter of 2018? Here are two strategies we recommend.

1. Strengthen dealer relationships

Credit unions gained market share in 2017, when banks and finance companies pulled back on lending activity due to delinquencies and charge offs. However, they’ve re-entered the auto loan market in 2018, spawning increased loan competition.

Credit unions must leverage technology to continuously improve the efficiency and consistency of their loan decisioning, processing and funding. Every dealer wants to hear that your credit union is going to consistently underwrite loans and make that process as quick as possible.

2. Focus on used car financing

Consumer interest in quality used cars — including older, higher-mileage models — has been strong this year. The potential of tariffs by the Trump administration on new car imports, as well as on steel and aluminum used to manufacture cars in America, have driven up the price and sales of used cars, according to an August 18 article by CNBC. It reported that as of July 31, the Manheim Used Vehicle Value Index was at its highest point since it first began tracking used car sales in 1995. That’s particularly significant because July is historically a slow month for used cars.

However, credit unions may need to loosen their underwriting to further accommodate these buyers. Don’t forget that B paper and below provides some great revenue potential when risk is properly managed. And if your credit union is trying to attract young members, you may have to expand your underwriting parameters to increase market share.

Auto lending is one of the cores of what credit unions do, and they continue to have a strong marketplace presence. Credit unions have taken advantage of stronger than expected new and used car sales, providing superior service and ramping up staffing where needed to meet member demand. The credit union community is well positioned to record another excellent year of double digit loan growth in 2018.

About the Author

Bob Child
Bob Child is CU Direct's chief operating officer, overseeing the company’s finance, marketing and communications, training, and human resources functions. Bob has over 12 years’ experience in the financial services industry, with expertise in developing and executing new best practice strategy functions and establishing program management offices.