CUs Find the Fuel to Rev Up in Struggling Auto Lending Market
It's almost impossible to avoid. Turn on any TV or pick up any newspaper and you're sure to find at least one story about the struggling economy and its negative impact on the financial services market.
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It’s almost impossible to avoid. Turn on any TV or pick up any newspaper and you’re sure to find at least one story about the struggling economy and its negative impact on the financial services market. Although it may sound strange to hear, despite the slumping market, credit unions continued to maintain strong momentum through 2008. In particular, credit unions saw their momentum increase in the automotive market.Perhaps the best indicator of credit unions’ success in the 2008 auto lending market is the market share they captured during the year. On a monthly basis, credit unions initially saw their market share sag during the first months of the year to 12.9% in March, a five-year low. However, as credit unions moved into the second quarter a number of larger banks and captive financers begin to tighten their lending standards or, in some cases, exit the market entirely. As credit unions held their ground and continued to offer members financing options, their market share began to jump by leaps and bounds.Starting in March 2008, credit unions’ market share increased by an average of nearly one full percentage point each month. By year-end, credit unions had captured 21.4% of the auto loan market, a record high. Moving into January 2009, credit unions had captured 24.6% of the market, nearly doubling their market share in less than a year, with credit unions responsible for financing one in four vehicles sold during the month. This momentum will be crucial in2009 as vehicle sales projections still remainrelatively low according to AutoCount data from Experian Automotive.So, as credit unions look to drive balances in the current automotive market, what can you do to capitalize on these successes? To further rev up market share, it is important for credit unions to let their members know that they are still in the market and have money to lend. However, it’s also important to let the dealers know that they are in the market with money to lend. As larger banks and captive financers step back, now can be a great time for smaller institutions to make themselves known to the market. Developing or expanding dealer relationships is one way for credit unions to gain a foothold in the market.Previously, many credit unions had the mentality that only indirect lenders needed to cultivate relationships with local dealerships. However, over the past year, a number of credit unions that are exclusively direct lenders began to work with local dealers to market the credit union’s financing options. These relationships are important now with the market continuing to struggle but also have the potential to become even more important in the future once it does turn around and larger banks and captives return to the market.Another factor in credit unions’ success in 2008 was the Invest in America program. This auto sales program, originally piloted in the Midwest and now rolling out nationwide, saw credit unions partner with GM and Chrysler to offer supplier pricing and additional rebates and discounts exclusively to credit union members. These credit unions were able to market yet another distinct benefit of credit union membership, helping dealers move vehicles, credit unions increase loan balances, and members find the car they were looking for at a better price. Invest inAmerica data show over 28,000 vehicles weresold through January, representing approximately $450 million in loans originated at credit unions through the program.Although credit unions have found success in capturing additional market share and working with local dealers, the slow vehicle sales experienced in 2008 did impact loan volume. In fact, new auto lending was the only component of the credit union loan portfolio that did not post an increase during both 2007 and 2008.In a market that saw light vehicle sales decline 18.0% during the year, the market for financing those vehicle purchases was simply not there. Partly reflecting this braking in sales, credit unions saw their new auto loan balances skid down 6.6% during 2008. Consumers who still needed a vehicle may have shifted gears to the used vehicle market as a lower priced alternative. This shift in purchasing mentality gassed up credit unions’ used auto loan balances increase in 2008, up 5.1% to $95.5 billion as of December. Indirect lending also continued to expand as new credit unions entered the indirect market, driving balances up 5.8% during the year.As used auto loan balances increase and new auto loan balances continue to struggle, used auto lending now accounts for a larger percentage of the average credit union auto loan portfolio. With the average value of a used auto loan at $9,800 (or approximately one-third less than that of the average new auto loan), the number of loans is holding steady, but balances have begun to decline. This resulted in a net decline of 66 basis points in the credit union auto loan portfolio during the course of 2008.Looking further ahead into 2009, credit unions are positioned to build on their current momentum. Although projections indicate a slow auto market in early 2009, credit unions remain quite active in the market and will likely see market share continue to increase. By staying in the race to offer financing to members in need, credit unions can reach the finish line, even in the down automotive market, and possibly qualify for the pole position.
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