WASHINGTON – The new facts of auto lending life for credit unions are fast becoming apparent, and indirect lending is figuring into those facts for an increasing number of CUs. With manufacturers' 0% financing offers now becoming almost a permanent part of the auto lending landscape, credit unions faced with an increasingly competitive lending market, declining new vehicle price tags and a glut of used autos sitting in dealers' lots, are turning to indirect lending to help boost their auto loan portfolios. Data from Callahan and Associates show the number of credit unions over $50 million in assets with an indirect lending program rose 25% in the first quarter 2003 compared to the same period 2002. Moreover, credit union indirect loan originations increased 29% in the past 12 months to $19.9 billion. They were up more than 31% in first quarter 2003 vs. 2002 alone – $5.4 billion vs. $4.1 billion, respectively. The good news for credit unions is the size of their auto loan portfolio has steadily increased for the past five years. By the end of 2002, Callahan data show, CUs had $134.9 billion in their auto loan portfolios. One year prior they had $127.8; in 2000, $120.7 billion; 1999, $106.4 billion; and in 1998, $94.8 billion. First quarter 2003 stats show that trend is continuing – CUs' auto loan portfolio as of March 2003 was $135.6 billion. While credit unions' auto loan portfolio is growing, so too is the percentage made up of used auto loans. In 1998, used auto loans made up about 50% of CUs' auto loan portfolio. By 2002, that figure was up to 54.5%, and in the first quarter 2003, used auto loans already made up 55.5%. In comparison, new auto loans have declined to a point where, as of the first quarter 2003 they made up less than 45% of CUs auto loan portfolio. "What credit unions are seeing with new auto loans definitely isn't for lack of trying," said Callahan EVP Jay Johnson. "The new vehicle market is extremely competitive now and prices on vehicle are coming down. Interest rates are the main weapon credit unions are using in their arsenal to compete in new vehicle loans." According to Callahan, credit unions' average new auto loan rate as of December 2002 was 6.59%. Twelve months prior, it was 7.04%. CUs' average used auto loan rate as of December 2002 was 7.50%, compared to 7.96% as of December 2001. The good news for credit unions, said Johnson, is that their efforts to educate members about reading the fine print in 0% financing offers is paying off. An increasing number of members, like consumers in general, are opting to take the cash rebates instead of 0% financing. "So even if credit unions' auto loan portfolio is taking a hit, at least their educational approach to manufacturers' 0% offers is paying off," said Johnson. -

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