Credit: Naree/Adobe Stock
Credit union leaders today face an uncertain and perplexing economic future driven by unpredictable shifts in tariff policies, recession fears and a resurgence of threats to the credit union tax exemption. When confronted with uncertainty and risk, forward thinkers prepare for the unexpected and react with purpose as developments unfold.
Auto lending makes up more than a third of credit union lending portfolios, and understanding the impact of significant tariffs on automobile manufacturing needs to be a priority for strategic planning. It is no secret that nearly every car sold today is the product of a global marketplace that includes parts and assemblies that may cross borders multiple times before the vehicle is ready to be sold. New tariffs could easily add thousands to a new car's cost and negatively impact buyers' affordability.
Recommended For You
Credit unions have recently enjoyed double-digit growth in auto loans during March and April 2025 compared to last year. While it would be nice to think that growth represents recaptured market share, most experts agree that the threat of tariffs and higher costs is pulling demand forward as consumers try to get ahead of price increases and retailers exploit trade war fears into sales events. In a late-breaking development, a temporary pause in implementing auto tariffs has given the industry some short-term breathing room. Consequently, auto sales are expected to remain steady over the next few months. However, bigger tariffs are still in play, and the administration’s policy is subject to change without notice.
A jump in new car prices has obvious implications for consumer affordability, loan volume and default risk. The 96-month car loan isn’t the anomaly it once was, but that doesn’t make it the right or wrong answer for your member. Credit unions will need to step up their game in both financial literacy education and risk management to retain market share. Rising new car prices will trigger multiple secondary implications, potentially including a welcome stabilization of used car prices, which have been dropping precipitously and putting pressure on collateral values. Tariffs will also apply to replacement parts, pushing mechanical repair costs higher, not to mention the implications for body shops and auto insurance premiums.
In addition, the challenge has become more complicated due to the lack of continuity and ongoing uncertainty resulting from abrupt reversals and day-to-day changes in the current administration’s global trade policies. Credit union lenders need to model diverse scenarios ranging from modest to severe tariff impacts and assess the consequences for deposit flows, funding costs and net interest margins. Credit unions should also factor preparation for sudden policy shifts into underwriting, pricing and risk management.
The effects of tariffs and international trade policies extend beyond new car pricing and can influence broader economic trends. Many economists note that tariffs may lead to higher prices and contribute to inflationary pressures. While inflation had been gradually easing after its post-pandemic peak, evolving trade policies could introduce new market dynamics that warrant attention. Experts continue to assess potential economic shifts, including the possibility of adjustments to Federal Reserve policies, such as interest rate changes.
Given these considerations, credit unions have an opportunity to proactively support their members. By focusing on risk modeling and transparent communication, they can ensure members are well-informed and prepared for possible financial adjustments. Offering guidance on budgeting strategies, refinancing options and financial resilience can help members navigate any evolving economic conditions with confidence.
While economic and legislative changes continue to shape the financial landscape, credit unions remain committed to providing affordable financial services to their member-owners. The tax exemption for credit unions has long supported this mission, allowing them to prioritize community-focused lending rather than shareholder-driven profits.
Industry leaders believe that the credit union tax exemption stands on its own merits, but legislative complexities can sometimes introduce unforeseen challenges. To safeguard this essential status, credit unions can play a proactive role in advocacy, engaging with elected officials to highlight the positive impact of tax-exempt credit union services.
Equally important is member education – helping individuals understand the value of credit union membership and access to affordable financial solutions. By sharing their financial success stories through social platforms, members can reinforce the benefits of credit unions and contribute to broader community awareness.
Collaboration is the secret weapon that gives credit unions their competitive edge. They should work with their peers to share best practices, gain business intelligence and amplify the effectiveness of advocacy. They should also stay connected to industry resources and like-minded business partners and invite members to improve their financial well-being with the help of their credit union. Finally, they should stay agile and prepare for sudden shifts in economic conditions.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
