ONTARIO, Calif.—Yet another forecast suggests credit unions should begin looking for new ways to keep their auto lending portfolios growing.
CU Direct’s latest State Of The Credit Union Auto Lending Market report indicated that the growth of new car sales is slowing markedly from last year’s record pace.
“We are seeing flat or minimal growth this year through June. There is growth, as sales have grown 1.4%, so that is positive. But it’s just not close to the growth we saw last year,” said Jose Torres, CU Direct market research analyst. Torres added that the flattening is a trend CU lenders need to address.
Recently, Ford Motor Co., the no. 2 U.S. automaker, said during an earnings call with analysts that it believes the record years of auto sales are over. "We are seeing signs of a maturing U.S. recovery," Ford CEO Mark Fields told analysts during the call.
Pent-Up Demand Waning
In addition, NAFCU noted that despite a rebound in vehicle sales during July over previous months, there exist signs that sales growth is slowing as pent-up demand from the recession diminishes.
But used car sales, growing at 6.1% on the year through June, are increasing at a healthy pace compared to a year ago, said Torres.
“Seven out of 10 cars financed by CU Direct credit unions are used,” said Torres.
What bodes well for the movement is that credit union auto loan growth continues to outpace the national average as CUs grab more market share from other lenders.
Credit unions captured 25% of all auto loan originations during the first quarter of 2016, a pace on par with 2015, according to Torres. “As I said, credit unions are doing well with auto lending.”
From a dollar perspective, CUs in Q1 accounted for $37 billion of the $147 billion in total originations.
CUs’ march to a higher share of the overall auto loan market continues, passing 21% through June.
“That is one percentage point higher than in 2015,” said Torres. “We have been watching credit unions’ momentum in auto lending build, as their market share has steadily increased each year from 19.7% in 2014.”
Torres noted that CU auto loan outstandings were at $272 billion at the close of Q1 2016, a $34-billion increase over Q1 2015.
Another good sign, said Torres, is that as membership grows in credit unions so do auto loans. Currently, one-in-four members have auto loans with their credit union. Torres attributed much of that statistic to a growing emphasis on indirect lending at credit unions.
But a number of analysts have stated that is also a sign that credit unions need to do a better job of deepening relationships and gaining members through other avenues. They caution that many of the new members coming aboard in recent years are simply taking an indirect loan and are not looking for more services. That’s a primary reason CU Direct acquired Intuvo in 2015—to develop better onboarding and cross-sales solutions.
CU indirect loans at stood at $143 billion at the close of Q1 2016, up $23.2 billion (19.4%) over Q1 2015.
Third-Largest Lender
As a group, CU Direct credit unions represent the third-largest lender in the nation, behind only Wells Fargo and Ally, respectively. CU Direct credit unions’ loan growth rate stood at 16.4% through June, clearly the highest among all top-ten lenders. Chase, the fifth-largest lender in the country, was next in line, growing through June at 8.3%, according to the company.
Leasing continues to be an attractive option among car buyers nationwide, with 31.4% of all new car sales being leases, said Torres.
A growing number of auto industry analysts see leasing as an option more lenders, particularly credit unions, need to embrace. They predict that leasing’s appeal will rise rapidly in the coming years due to rising car prices, the need to keep the monthly payment down, and a desire to get a new car more often due to the changing technology in cars.
Pointing out that leasing is steadily stealing share from formal financing, Torres thinks leasing in the U.S. will someday be on par with that seen overseas.
“I think this trend toward leasing will continue,” said Torres. “I think we are looking at a new future. We may see a market more like that in the U.K., where 75% of new cars are leased. This is a growing trend, and one that is moving quickly.”