It's hard to think about luxury right now when so many peopleare thinking about cutting back and living with the bareminimum.
But loans on lifestyle items such as boats, RVs and motorcycleshave not been put on the back burner for credit unions as thedemand for such loans has been dwindling.
At The Golden 1 Credit Union in Sacramento, Calif., President/CEOTeresa Halleck said that RV loans were pretty popular and growingin a demand with baby boomers before the economy started toslide.
Many boomers, she said seemed to be opting for the RV lifestyle,and there was talk about growth in the area of RV loans for alittle while. When gas prices hit $5.00 a gallon though, Hallecksaid many started to abandon the RV lifestyle along with bigger gasguzzling cars.
“When gas prices went back down, though we saw people immediatelywent back to buying gas guzzling items. It ties right back to thelifestyle.”
In California right now, Halleck said, that people are just notspending on discretionary purposes.
“People are pulling back and hunkering down. We don't see much inthe way of motorcycles even, and they're fuel efficient. People arejust not making those purchases.” Halleck pointed out that inCalifornia they're a second vehicle because they're not practicalfor the rainy season that the area sees.
Gary Mitchell, director of consumer lending at Partners FederalCredit Union in Orlando, said that they are seeing lower loanvolume in these areas too, which was expected.
Mitchell said that they do have members applying for boat, RV andmotorcycle loans, but Partners has seen an approximate 25% drop inloans in these areas over previous years.
During 2005, 2006 and 2007 The Golden 1 was averaging $1.6 millioneach month in total for boat, RV and motorcycle loans. Currently,the credit union is averaging $600,000 per month, a 64% decline involume for these types of leisure loans.
With the uncertainty of how long it will take the market to comeback Halleck said she isn't sure when or if the demand for thoseproducts will come back. From what she observed about consumerspurchasing habits fluctuating with gas prices, Halleck said, thoughthat as soon as consumers start feeling good again loans on theselifestyle products will pick right up. “I don't believe people havechanged their lifestyle for the long term.”
Mitchell agreed that when consumer confidence increases, creditunions will start to see more of these types of loans again.
In the past, The Golden 1 would visit boat and RV shows, but rightnow Halleck said they are less likely to participate in these typesof events because the demand just isn't there. However, Halleckbelieves that there will be a time where demand for these loanswill return.
“The Golden 1 management believes the current economic conditionsare creating pent-up consumer demand that will eventually burstforward as the economic storm clouds begin to clear and memberssense a rainbow of economic opportunity beginning toreemerge.”
For this year though, Halleck said it is likely that the volume forleisure product loans will remain low as members opt to take daytrips on already owned or rented RVs and boats.
Marketing these types of loans wasn't the credit union's approachto begin with, Halleck said, and with the low demand for them nowthey're sticking with that approach.
At Partners, Mitchell said the credit union's approach is to dowhat he called relationship marketing and not to push a product orspecific item.
“We want to produce the message that if you need to borrow in anyway, shape or form that you should go to your credit union.”
Through the credit union's indirect lending program, Mitchell saidthat they do have relationships with boat and RV dealerships sothat when the member comes to them for a loan they can go out anduse the loan to purchase these types of items.
Delinquency rates in general have been increasing with the highunemployment rate, but Halleck said that they have not seen atremendous increase in delinquencies for loans on boats, RVs andmotorcycles. Loan areas that she said are producing increaseddelinquencies for the credit union are home equity loans, mortgagesand more recently credit cards.
Mitchell said that Partners has not been seeing a high delinquencyrate for these types of loans either. Part of the reason behindthis, he said, is that they have a selective approval process forluxury items. The credit union usually requires large down paymentsand structures the loans so that if members have a life experience,such as a job loss, they would not be in over their heads.
One popular area right now that Partners is tapping into is greenstrategy loans. Disney, Mitchell said, has launched a greenstrategy campaign that Partners is working to align itself with.The credit union offers a reduced interest rate of 25 basis pointson any hybrid vehicle.
In Berkeley, Calif., Cooperative Center Federal Credit Union hasstarted offering financing on electric cars. The credit union hasagreed to finance 100% of the purchase price of a ZENN electric carfrom Berkeley's Green Motors. The loan has a fixed interest rate aslow as 5%. The ZENN electric car costs around $19,000 at GreenMotors.
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