The $2.1 billion Municipal Credit Union in New York did not see strong growth in auto loans over the holidays, but there are signs that more robust sales are on the horizon, according to Ahmed Campbell, vice president of credit operations.

“We have a general pattern which sees our auto loan pace really drop off after Columbus Day weekend in mid-October,” Campbell said. “And, that happened last year too. But, where in other years, the pace would have been really slow until about mid-February, this year's is not as slow.”

As of Jan. 23, Municipal's auto loan portfolio totaled $308.6 million with used car loan balances surpassing new car loans at $180 million and $128.6 million, respectively, according to Campbell.

The credit union did not change its underwriting criteria for the lending wave and felt comfortable the credit union would not see a greater percentage of the new loans go bad, he said.

“The loan fundamentals remain sound,” he said. “They are secured by an asset that people need, everyone uses their car, and there is just a lot of pent up demand.”

However, Campbell stressed that Municipal is not sanguine about its risks in the loans. The credit union takes a sophisticated approach to monitoring loan performance and stepping in, if necessary.

“We will work with our members to help them make their payments and keep them in their cars,” Campbell said, adding determining which approach to use depends on the member's prior payment history and behavior.

“Frankly, we act quickly in some circumstances because there might be people whose records suggest we would just be postponing the inevitable if we gave them another 30, 60 or 90 days,” Campbell said. “But there are other people whose prior behavior makes it clear that any delinquency is unusual and that they might need help.”

Campbell also reported that 80% of members whose cars Municipal repossesses actually get their cars back after working out a plan with the credit union to bring their loans current.

Consumer data firm TransUnion estimated the 60-day auto loan delinquency would hit 1.20% by the end of 2014 and rise to 1.27% by the end of 2015. This is still sharply below the last high point of 1.59% in 2008.

“We expect the auto loan market to continue to perform exceptionally well in 2015, with more sales leading to continued increases in auto loan debt per borrower as the national portfolio gets younger on average,” Peter Turek, automotive vice president in TransUnion's financial services business unit, said in a press release.

Turek said TransUnion anticipates the economy will continue to improve this year, with a better employment picture helping the auto industry.

“While the auto loan delinquency rate has slowly risen to a point where it will be above 2010 levels, we are still far off the peaks observed in 2008 and 2009 when delinquencies were more than 30 basis points higher,” he said.

So far, the $720 million Point Breeze Credit Union in Hunt Valley, Md., has seen much stronger auto loan performance, according to Tricia Harrison, chief lending officer. The cooperative is up 16% in auto loans driven by pent up demand and better weather.

“Last year was so awful in January and really into March,” she recalled. “I think this year, people have been more able to get to the dealerships and take a look at what they have.

Harrison said because New Year activity came on the heels of a stronger than usual holiday season, she tended to see it as a continuation of an existing trend.

Like Campbell, Harrison said Point Breeze did not change its underwriting criteria, but maintained a close watch on the loan's performance to limit any potential losses.

On the West Coast, the $810 million, 54,000-member Los Angeles Federal Credit Union is also basking in the glow of healthy auto loan portfolio growth, said Art Sookazian, vice president of special services, which includes collections.

As of Jan. 29, the cooperative's total auto loan portfolio was $71 million. Used car loan balances were $49.9 million and new car loan balances were $21.2 million, according to Sookazian.

As the case with other credit unions, member demand, as well as strong incentives from auto manufacturers, has boosted loan numbers.

“They're making it easier to purchase an auto,” Sookazian said referring to the manufacturers.

In addition, the drop in gas prices has resulted in more people feeling comfortable with affording car payments, he added.

Sookazian said Los Angeles FCU has implemented a sophisticated system that measures and tracks delinquencies daily to help the credit union keep on top of loan performance.

“The sales momentum seen throughout 2014 is continuing into 2015 and, unlike last year, inclement weather has not slowed vehicle sales thus far,” John Humphrey, SVP of the global automotive practice at J.D. Power, said in January. “With an additional weekend in January this year, the industry is on a trajectory to post the second-largest year-over-year retail sales growth in the past 17 months.”

With the continuation of low gas prices, consumers are purchasing more trucks, Humphrey noted. In January, trucks, vans and SUVs accounted for 55.4% of sales, the highest level for a January since 2004.

Instant Insights /

Credit Unions Temper Auto Boom by Monitoring Risk

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