Consumers’ Love Affair With Cars Remains Steamy
My car has been my baby for the past nine years.
When the Volkswagen New Beetle came out when I was in high school in the late ’90s, I fell in love. It was so cute! I made do with two hand-me-down cars until the age of 24, when I saved $6,000 for a down payment while living in Lake Charles, La., picked out the silver New Beetle I wanted online, and headed over to a dealership in nearby Orange, Texas to pick it up. Only regret: The auto loan was through Chase Bank, not a credit union. Scold away.
The Beetle survived a cross-country road trip from the South all the way to Oregon, a move to San Francisco, another move back up north and a final move to Los Angeles. I learned how to fit my belongings into the oddly-shaped vehicle like a puzzle. Now, with scratches on the back bumper and rips in the leather seats, it sits in my ridiculously-small parking spot, which is just the right size for a Beetle, at my apartment.
It's had its fair share of problems, including a faulty radio that causes the battery to die overnight (the radio is now disconnected, forcing me to pathetically play music directly from my iPhone while driving). But I plan to drive it until the next expensive repair is needed – and until I can afford to live somewhere with a bigger parking spot. And when I do finally replace it, it's going to be bittersweet.
My story may not be typical (most people would have kicked their slowly-dying car to the curb by now) but one thing I have in common with many consumers is the belief that our emotional connection to cars is real. Cars represent success, prestige and personal style. They’re with us during some of our biggest moments, like arriving for an important job interview or first date, or backing out of our parents’ driveway to go live on our own for the first time.
That's why I feel that even as ride-sharing apps like Uber and Lyft rise in popularity and the buzz around self-driving cars builds, car ownership is here to stay. And that's good news for credit unions, which have viewed auto loans as their bread and butter product offering for a long time.
In my experience, Uber and Lyft serve a distinct purpose: To get you where you need to go when you’re drinking and/or don't want to deal with parking. They’ll never fulfill the independence and pride associated with owning or leasing your own vehicle. I’m not the only millennial who feels this way: On Nov. 14, Bloomberg reported that according to a study from the San Diego-based consulting firm Strategic Vision, young people love cars and would rather own one than rely on ride-sharing services. The study found millennials are happier with the vehicles they buy than any other generation, and while they do enjoy Uber and Lyft, they use the services for specific reasons like attending events where parking or traffic is a problem.
And don't expect self-driving cars to take over the roadways for a very long while. Consumers are dabbling in the idea by experimenting with the Tesla's autonomous components, for example, and other automakers are planning to unveil their own versions of self-driving cars within five years. But before they can go mainstream, many safety and regulatory issues will need to be addressed. There's also the fact that the approximately 253 million cars on the road today won't simply disappear, a Nov. 17 article from The Motley Fool pointed out. The article hypothesized that while self-driving cars may be in mass production by 2020, the complete shift wouldn't take place until 2035, when the fleet of cars on the road finally turns over.
The bottom line for credit unions is that ride-sharing apps and self-driving cars are not expected to disrupt car ownership rates any time soon, so keep your auto lending momentum going. Here are a few things credit unions can focus on to boost their strategy in 2017, all of which were suggested by CU Direct President/CEO Tony Boutelle in a recent interview.
Maintain strong dealer relationships. Dealers already appreciate credit unions for their quick response times and reliable payments, but credit union executives could improve their dealer relationships by meeting with them to review reports or metrics on how their loans are performing, Boutelle noted.
Finance used vehicles coming off leases. Leasing peaked this year, with consumers leasing 30.9% of all new vehicles, up from 25.2% in 2014, CU Direct reported. Boutelle said while he recommends only the larger, more sophisticated credit unions get into leasing, all credit unions can benefit from the uptick by financing used vehicles that are expected to come off leases next year.
Keep an eye on your portfolio. The market will soften next year from a credit standpoint and there will be more auto loan delinquencies, Boutelle forecasted. That means portfolio and risk management will be critical. Credit unions should also be more responsive to the market when setting rates. “We see that when market rates move, credit unions are much slower to move, but that may not be good for the yield,” he said.
Start looking to the distant future. Boutelle agreed that while ride-sharing apps and self-driving cars won't impact the auto lending industry any time soon, credit unions should begin pondering their role in these emerging markets. “We should be thinking about how to creatively serve [the self-driving car] market,” he said. “Someone is going to have to finance it.” He suggested some credit unions begin thinking outside the box now by financing Uber and Lyft vehicles.
Having captured more than one in four auto loan originations in Q3 2016, according to CU Direct, credit unions are in excellent shape. But as with anything else, there's always room for improvement. Keep nurturing that everlasting love affair between car and consumer by taking your auto lending strategy up a notch in 2017.