Credit unions hedge bets as auto industry rebounds | Credit Union Journal


Shortages of microchips and other supply chains have reduced auto financing opportunities for credit unions in recent years – and while there are signs of a turnaround, competition has intensified since the pre- -pandemic.

In addition to competing with big banks, credit unions will have to steer potential customers away from online dealerships such as Carvana, CarMax and Vroom that eliminate much of the friction of buying new vehicles.

“It’s definitely harder to compete for member loans when the big financial institutions and online banks and lenders have more marketing dollars and brand awareness than we do,” said Jenna Lampson, president and CEO of the management of Pacific Service Credit Union in Concord, California.

Online resellers in particular “have decent inventory, and in some cases more inventory than physical resellers,” Lampson said. “It’s going to be difficult to compete for this business at the point of sale unless we can integrate as a preferred lender.”

As demand for new car loans recovers, credit unions will increasingly have to compete with online dealerships like Carvana that have large inventory and a streamlined sales process.


Despite these headwinds, things seem to be looking up for credit unions. New car loans at credit unions fell just $0.4 billion, or 0.3%, to $141.5 billion on an annual basis in the third quarter of 2021, according to the most recent data. published by the National Credit Union Administration. A year earlier, new auto loans fell $5.5 billion, or 3.7%, to $141.9 billion.

Depleting dealer inventory has shifted some buyers to used cars in recent years because those vehicles were available immediately, Lampson said. New cars take months to deliver and some orders have been canceled altogether, she said.

In contrast, used car loans from credit unions rose $19.6 billion, or more than 8%, to $256.6 billion in the third quarter of 2021. A year earlier, Used auto loans increased $10.1 billion, or 4.4%, to $237 billion.

Supported by used auto loans, global auto loans from credit unions grew $19.2 billion, or 5.1%, on an annual basis in the third quarter of 2021, to reach $398 billion.

Pacific Service Credit Union, with $1.4 billion in assets, had nearly $98 million in new car loans outstanding at the end of the third quarter, up from $112 million a year earlier.

Matt Selke, CEO of the $89 million Pinnacle Credit Union in Atlanta, said the biggest problem with new auto loans remains a lack of inventory.

“Fix the supply chain issues and 2022 will be fine,” he said.

Pinnacle had about $7.1 million in new auto loans on its books at the end of the third quarter, up about $400,000 from a year earlier.

Home loans in Atlanta are still a hot market, and Pinnacle and other credit unions nationwide are now relying more on mortgages as auto loans lag, according to Selke. Additionally, credit unions are adding new products to their loan portfolios, such as alternative payday loans, unsecured loans and subprime loans, Selke said.

not so fast

Some short-term forecasts are not too optimistic. Retail sales of new vehicles for January are expected to decline from a year earlier, according to a joint forecast from JD Power and LMC Automotive.

“Despite optimism towards the end of 2021 that reduced supply chain disruptions would result in more vehicles being delivered to dealerships, the new vehicle supply situation showed no signs of significant improvement,” said Thomas King, president of data and analytics at JD Power. .

But Credit Union National Association chief economist Dawit Kebede said credit unions should expect improved overall loan growth this year as economic activity continues to expand and labor market conditions are improving.

There is also pent-up demand for new vehicles due to supply shortages over the past two years, he said.

“Some reports indicate an improvement in the supply of semiconductor chips, bringing total new vehicle sales back to pre-pandemic levels. Overall price hikes and potential interest rate increases are a few challenges that will make loans a bit more expensive compared to last year.

Kebede said credit union financing for used auto loans was a bright spot and showed an impressive growth rate last year — about double the growth rate the industry saw in 2019 and 2020.

“We believe conditions in the auto industry will improve in the later part of this year, partly satisfying pent-up demand for new cars and bringing greater success to credit union auto financing,” he said. declared.

Vincent Hui, managing director of consultancy Cornerstone Advisors, said supply and demand will help auto credit this year as there is pent-up demand for cars and supply chain impacts ease.

“So things are going to get better for auto loans, and we’re already seeing an overall increase in borrowing — albeit still below pre-pandemic levels,” he said.

Data Driven

Pacific Service plans to capture its share of auto loans in 2022 by using data analytics to reach its members when they need it, according to Lampson.

“We’ll have to present them with an offer just in time to finance their next car and remind them why getting a loan and doing business with their credit union is better,” she said. “If we can earn their loyalty, we earn their referrals and retain their customers because we’re in their think tank when they need a loan.”

For lenders, a seamless experience is key in the new digital world, with more people comfortable applying for loans online and even buying cars online. This will ensure successful players will have a frictionless experience with the ability to engage with a live person if needed, Hui said.

“The biggest challenge will be interest rates and their impact on demand and institutional balance sheets,” he said.

Rates are expected to rise, leading to higher monthly payments for borrowers. That prospect may entice people to buy now when rates are even lower, but could have longer-term negative effects, he said.

Big banks clearly have an advantage over credit unions in new tiered auto financing, but some banks may be considering more lucrative lending opportunities, which could open the door to community banks and credit unions, said Hui.


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