By Ray Birch
PHOENIX—The rapidly rising price for new vehicles—now at $47,000—should have credit unions rethinking their lending processes, says one automotive expert.
And a big driver the need for change is the growing acceptance of electric vehicles (EVs), says Scott Painter, founder and CEO of EV subscription provider Autonomy
“One thing is certain, we're all going to drive electric cars and they're going to cost more,” said Painter. “If credit unions want to serve their members, they’ve got to find a way to deliver that car for less money on a monthly basis. Because with prices rising so high and so fast, it doesn't matter anymore what the car costs, it matters what the monthly payment is.”
That trend is driving lenders to not only adjust lending offerings, but also to consider becoming involved in the subscription model, where cooperatives themselves could possibly own fleets of vehicles that they in turn provide to their members via a subscription. That subscription means the member/subscriber pays only for the use of a car for a certain period of time, based on their needs.
It’s not just high prices driving the shift, it’s legislation, as well. As CUToday.info reported, California has banned the sale of gasoline-powered cars, adopting rules that would require all new vehicles sold to be free of greenhouse gas emissions by 2035. It is expected that California’s decision will drive similar legislation in other states, although, as outlined below, not everyone agrees.
“Based on what's happening in California and what's coming, I would you tell credit unions they should be looking for a way to provide their members with access to a product that is getting very expensive,” said Painter, adding that many credit unions are ina strong capital position and have the cash to own fleets if they desire. “As I said, they need to provide this product in a way that results in a lower monthly payment. One way to do that is the subscription model, but they should really be looking at other creative auto financing solutions. I think it’s well within credit unions’ wheelhouse.”
‘Big Forces at Work’
While rising car prices will be an ongoing battle for consumers to address, Painter said he is not certain how California’s move will affect gas-powered vehicles in the future.
“There are number of big forces at work that are going to force the transition to electric, and regulations certainly are one of them,” said Painter. “I tend not to believe that it's necessary. I also don't think that there's going to be an omnibus solution. For example, I don't think there's going to be a federal law banning gas-powered cars. You've got one of the biggest industries on planet Earth that is going to resist that pretty hard.”
Painter said he is among those who do not believe many states will follow California’s lead.
“I do think that banning gas-powered cars is going to be an incremental thing, up and until 2035,” he said. “I think consumers are wanting it…Maybe it won’t be regulation that forces the change. The tipping point might just be consumer demand for electric and the automotive industry just saying to survive we have to go electric. I think that's probably the bigger forces at play here.”
The Real Driver
Mass adoption of electric cars will be based more on consumers’ ability to afford them, according to Painter.
“There are currently 38 different EV makes and model trims scheduled for production over the next 18 months among 17 different manufacturers,” said Painter. “Five of them are new entrants altogether. I don't think everybody's going to hit their target in terms of production, which means things are going to take just a little bit longer. If you want to know the arc of electric vehicle adoption, I would follow the production arc more than anything else, because we can't drive more EVs than what is being made.”
Thee are other reasons Painter believes California’s rules may not have as big an impact as some automotive analysts are predicting.
“I don't think that the auto industry today, across the market like the United States, can make 40% of the vehicles electric within three years,” he said. “That's really what California is mandating, and California is only 10% of the U.S. market. California might be able to get away with saying that that level of adoption is needed, but I think there's going to be a lot of penalties paid and it's going to be hard to meet that objective.”
Not Going Off a Cliff
Painter said he also does not believe in the ICE (internal combustion engine) cliff, the point at which the value of gas-powered cars begins to drop due to the growing acceptance and consumer demand for electric vehicles.
“I do not subscribe to the theory that we're going to be ending a period and then entering a new period where this happens,” said Painter. “I think used internal combustion engine cars are going to become more expensive not less expensive, and that's going to especially be the case for used electric cars.”