By Ray Birch
ATLANTA—With the auto market expected to be flat or down this year compared to 2019, one expert is contending that how well credit unions fare will depend on how well they embrace digital in the space, especially as banks are demonstrating some real progress.
Jenn Reid, vice president of strategy and marketing leader, automotive, at Equifax, further suggested what will dictate a CU’s auto lending performance in 2020 is how well CUs conducted a “health check” in late 2019.
Digital retailing is exploding in the automotive market and banks have made strong inroads in the area, said Reid, suggesting many credit unions are falling behind banks with online and mobile auto lending.
“Credit unions need to improve their digital retailing and reach more of their members who need a car loan,” Reid said. “I think, generally, credit unions are going to see a similar competitive environment, but I think the key will be finding ways to get ahead this year.”
Providing More Information
In addition to streamlining processes to make online car shopping and loan funding simpler, credit unions need to provide members with more car-buying information.
“They have to get better at helping members in the research phase of the car-buying process,” she said. “What credit unions have typically been good at is sitting down with members and helping them understand how much car they can afford and then preapproving them. But things have changed so fast with online car shopping, that is not enough anymore—not enough to keep borrowers at the credit union. Just a massive amount of information on car buying that is available digitally. Credit unions have to play a much greater role in the online journey for their car-buying members. How well a credit union does with auto lending depends anymore on how well they move into the online world.”
To keep the pipeline flowing this year will also require credit unions to aggressively review their auto loan portfolio, the makeup of their membership and the local market to spot new opportunities, said Reid, who called the activity a “health check.”
Price for Complacency
“Credit unions that are complacent will find themselves falling behind their competitors this year,” said Reid, suggesting that as the market remains flat or even contracts, FIs will have little choice but to fight harder for their slice of the smaller pie. “What credit unions need to do is come up with ways to get ahead.”
Jenn Reid
Reid said one step CUs should take is to carefully examine their auto loan portfolios to determine the types of loans and buyers that are working out best for the credit union. She also recommended CUs analyze their membership base to determine borrower makeup by demographic segment, and to identify which members might be needing an auto loan soon or a possible refi.
“Then come up with certain rate schemes and credit tier offers,” she said.
Reid said the health check might reveal the credit union should reach into lower credit tiers. She cautioned, however, the expansion into this group of borrowers must be done very purposefully and carefully.
As CUToday.info has reported, auto loan delinquencies have been moving higher, and subprime borrowers are largely to blame for the increase.
Rethinking Lower Scores
Reid cautioned credit unions extending their portfolio to lower-score borrowers should do so using tools that not only carefully analyze borrowers for their ability to repay, but to also identify those who may have a low score yet are actually higher-quality paper.
“Expanding your reach into the borrowing market does not only mean lower scores,” explained Reid. “It means looking at different profiles of consumers. Maybe they are thin file consumers, for example, who are actually a very good risk. I wouldn't blindly just say let’s reach deeper. I’d ask how I can be very strategic and targeted about it.”
Reid emphasized 2020 is all about analyzing what the credit union has in its portfolio and then where it might go to expand, noting Equifax has tools for the internal assessment and business intelligence solutions to analyze the market.
“It’s definitely not the time to be complacent,” insisted Reid. “It’s either an opportunity to get ahead of your peers, or fall behind.”