RANCHO CUCAMONGA, Calif. — Credit unions are pricing their autoloans too low, and may be missing out on an opportunity to earninterest income in a tough yield environment.

That was the most surprising statistic uncovered by CUDL's 2007Business Intelligence Report, said CUDL Executive Vice PresidentJerry Neemann. The new report, which CUDL intends to produceannually, was complied from data collected by the CUSO from membercredit unions and third-party sources like Experian and J.D. Powerand Associates. “The one piece that stuck out to me was the ratedifferential between credit unions and captive and bank sources.Credit unions talk about how difficult it is with the yields beingthe way they are, but when you look at national averages, itappears that credit unions are leaving some rate opportunities onthe table,” Neemann said.

According to 2006 Experian figures, the average rate for acredit union auto loan was 8.12%. In comparison, banks averaged9.89% and captives averaged 10.81%. Not surprisingly, ratesdiverged most sharply when comparing subprime and below subprimepaper; however, even when comparing prime paper loans, creditunions still averaged more than a full basis point lower thanbanks.

“Are credit unions monitoring bank and captive rates from acompetitive aspect on a consistent basis? I can see being lower,but two basis points is too much in this rate environment. Itappears, on a nationwide level, that we are underpricing our loansrelative to the marketplace,” Neemann said. Another statistic CUDLis plenty proud to tout is the fact that, according to statisticsfrom Callahan & Associates, 80% of all net credit union autoloan growth in 2006 came from indirect channels, to the tune of$5.5 billion.

Neemann attributed the growth to the increasing number ofparticipants in indirect lending systems, which elevates the imageof credit unions as a go-to funding choice for auto dealers.

“When it comes to CUDL, we're aiming for a strategy ofimplementing something like an ultimate point-of-sale or ATMnetwork, where all credit union members could be funded through oneportal. It creates a business proposition for the dealer, becauseit's easier to send customers right back through to the creditunion using the credit union portal, rather than worrying about howto finance them. At the end of the day, they just want to sell acar,” he said.

The VP pointed out that in states where a large percentage ofcredit unions participate in the CUDL system, credit union marketshare is much higher than the nationwide average of 18%. Forexample, in CUDL's home state of California, credit union marketshare is 22%. In Utah, where CUDL participant America First CreditUnion is the state's leading auto lender, boasting nearly 17% ofthe market on its own, 45 out of every 100 auto loans is funded bya credit union. “The opportunities are there, state-by-state, torecreate what they have in Utah. I think market shares could gomuch higher nationwide, but credit unions have to consider the bigpicture. How does this industry create a POS deliverable for autoloans? It's already there, they just have to start participating,”he said.

The CUDL exec admitted that the findings may sound ratherself-serving, considering such a strategy would result inexponential growth for the CUSO.

“I'm excited about the opportunities, but it's so challengingfor others to see that potential. You run into those situationswhere a credit union has their own direct lending program and kindof owns the local market, which is great for them and theirmembers. But, what they're missing out on is that bigger creditunion strategy. It would have a tremendous impact on how autolenders do business, and I think it would revolutionize theindustry. Plus, it would be the most efficient and best way tocontrol members' experience at the dealership,” he said.

Neemann stressed that CUDL is a credit union-owned CUSO, sopartner credit unions would only stand to benefit from a strongerCUDL. And, the entire industry would benefit from a nationwide autoloan branding strategy.

The report also showed that the average auto loan rate term hasincreased, with more than half of all CUDL-originated loans havingterms longer than 60 months. This trend isn't limited to creditunions–banks and captives showed similar numbers.

Longer terms mean more interest income, provided the loans stayon the books. However, credit unions should also be mindful thatlonger terms increase the credit union's risk for loss because theloan amount is more likely to exceed the vehicle's value. “It doesincrease exposure on back side and on the remarketing side, but Idon't think we've seen a negative impact at this point, no greaterincrease in defaults because of longer terms,” Neemann said.Neemann said he has already received a call from a captive lender,wanting to purchase the CUDL report. For now, the CUSO is decliningsuch requests, electing to make the information available to creditunions first.

“We're analyzing the information to determine if there'sanything in there we don't want the captives to see,” Neemann said,adding, “But of course, we realize that if they really want it,they can probably get their hands on it anyway.”–[email protected]