This year may be a turning point for credit union auto loanprograms with monthly market shares poised to range from 18% to24%, which were highs experienced prior to the recession.

That's according to a new white paper, “Successful Indirect AutoLending Programs Build on Credit Union Strengths in Relationshipand Portfolio Management,” from CU Direct Corp.

The lending services CUSO found that once automotive lendingstarted to recover in 2010 and 2011, with finance companies,captives, and banks re-entering the automotive lending market,credit union auto loan market share began to return to more normal,pre-2008 levels of 17% to 18%.

Nationally, auto loans accounted for 29% of credit union loansoutstanding, representing $166 billion dollars in the third quarterof 2011, CU Direct said, citing data from Callahan & AssociatesInc.

Since the 2009 credit unions' indirect lending peak of $76.4billion, indirect loan volumes have also returned to pre-2008levels, the data showed. As of the third quarter of 2011, indirectauto loans accounted for 43% of credit union auto loans outstandingversus 37% for the same quarter of 2007.

Prior to the credit crunch of 2008 and 2009, credit unionindirect delinquencies and chargeoffs hovered near or below 1%,according to CU Direct. As unemployment climbed, the nationalaverage for credit union indirect delinquencies and chargeoffs rosefrom 1.34% and 1.45% in 2008 to 1.36% and 1.74% for 2009,respectively.

Research from CU Direct acknowledged that some credit unionshave struggled to make their indirect programs take off whileothers have been wary of starting them for fear that loansconducted via an external channel would be harder to control.

To address those obstacles, the white paper reminded creditunions that they have the ability and authority to enforce dealeragreements, which establish credit union lending guidelines andproper procedures to determine member eligibility.

Credit unions can also access reports that provide loan metricsat the dealer level so that they can manage and review indirectlending portfolios to make early intervention and correctionspossible to ensure loan quality, according to CUDirect. 

In 2010, credit unions started to see their indirectdelinquencies and chargeoff rates fall, according to the data.Since then, both have been below 1% for the past three consecutivequarters.

To find out the components of a successful indirect lendingprogram, CU Direct identified several credit unions that had lowercharge-off and delinquency rates when compared to the nationalaverage for credit unions obtained from Callahan & Associates'Peer to Peer software. 

The credit unions interviewed said it was imperative to measure,track and monitor metrics that report the overall health of theprogram, in addition to more detailed reports at a branch, dealer,loan officer, and underwriter level.

Tools to prepare for the NCUA's examinations are alsoessentials, the credit unions said. CU Direct cited VictoriaBennett, stating, “[The NCUA] is very much in favor of indirectlending…we're just concerned that it's a well-runprogram.” 

Through open communication with dealers, the credit unionsinterviewed said it keeps the credit union top-of-mind, helps tounderstand dealer needs, educates about market changes, anduncovers information related to competitive actions.

CU Direct said in recent years, a few dealers had to beeliminated from the auto lending program due to repeated violationsof the dealer master agreement or the credit union's programguidelines. One credit union representative said, “It's all aboutthat constant reinforcement, building that trust, assisting whenthey need help, cleaning up problems on delays for funding. Justworking hand-in-hand with them is huge.”

A successful indirect lending program also includescommunicating loan and member eligibility requirements to dealersas is consistency in underwriting, according to the paper. Aconsistent review of pricing guidelines is alsocritical. 

“I'm a fan of getting all the players in the room on a regularbasis, monthly,” wrote one credit union. “We talk about pricing,performance, performance by dealer, and credit tier. We may changeour credit tiers once a year, just based on how they areperforming.”