By Ray Birch
IRVINE, Calif.—In what has been a slow auto lending market this year, credit unions are extending themselves to keep the portfolio growing, according to one analyst who is pointing to several ways CUs are widening their reach.
David Adams, VP of lender client experience at CU Direct, told CUToday.info the country’s credit unions have been looking a little more at near-prime borrowers, extending their reach in neighboring counties where their FOM allows, paying more attention to recreational vehicle loans, and expanding into leasing.
And that’s not all.
“More credit unions are looking at how they can serve near-prime borrowers,” said Adams, not only to find more loans but to make more yield. “Some are managing the risk themselves or taking on partners who offer lender protection programs. This is just one of the levers credit unions are pulling now.”
No Agreement on Subprime
As CUToday.info reported, TransUnion’s latest data suggest more lenders will focus on subprime to grow in a year in which auto lending is expected to pick back up. “Future growth … may be dependent upon subprime borrowers,” TransUnion’s report projected.
But Adams doesn’t agree.
“I don’t see credit unions reaching into subprime,” said Adams. “That's a different kind of ballgame. But they are saying, ‘Maybe I can go down a tier to 680, 640.’”
Adams said credit unions are opening up new geographic markets to make up for the lack of borrowers within their typical space.
“For example, if their charter allows them to expand into a new county or serve a new SEG base, many are looking into that now,” he said.
More RV loans are being made, as well, especially as more Americans have taken to the road under work from (anywhere that is) home conditions.
“Credit unions that typically only dabbled in recreational vehicle loans are taking a harder look at these loans,” he said. “That's not going to be the panacea, but it’s another way to at least get some volume on the books.”
Pushing Another Pedal
David Adams
The other pedal credit unions have been pushing is leasing, added Adams, even though traditionally credit unions have not been significant players in the space.
“This move, too, addresses the affordability issue consumers are facing in purchasing new and even used vehicles,” Adams said, noting the average price of a new car recently skyrocketed to $41,000.
As CUToday.info has extensively reported, new car prices have been rising far faster than inflation in recent years, first due to the additional technology being loaded into them, and then due to a shortage of microchips that has stalled production of new cars across all automakers.
The new car shortage has led to many buyers paying above sticker for the new vehicle they want, raising the average selling price. That has led to higher used car prices, and a used car shortage as consumers turn in large numbers to the used market with fewer new cars to purchase.
“Credit unions are looking for incremental volume in what has become an uneven and unpredictable auto lending market,” Adams said.
Watch Loan to Value
Just as Black Book has recently cautioned, Adams agreed credit unions should be wary of loan to value.
“The price of vehicles is going to eventually start coming down, and will normalize,” said Adams. “Whether that is in four to six months … we're advising credit unions to look closely at loan to value. This is a bit difficult now because you have to serve your members.”
As CUToday.info has also reported, only lending for used vehicles grew in May for credit unions, according to CUNA Mutual Groups Trends Report.
Adams said a rebound is coming.
“Our credit union clients show an 18% growth over this time last year,” said Adams. “We’ve seen monumental growth in the last three months.”
Looking Through the Windshield
Yet, there are headwinds.
“Hopefully there will be enough cars to buy and this situation with the chip shortage will improve,” he said. “If you look across the country, this problem is not the same. In some areas of the U.S. there is no shortage—lots are full. And, too, this is an issue that is not evenly spread across all car models. For example, if you want a Dodge Ram truck, there is plenty of inventory. But it’s a different story with the Ford F150…I think it's just going to take a little more discipline and a little more tenaciousness on the part of credit union auto lenders.”
Credit unions on CU Direct’s CUDL platform collectively still hold onto the number one lender spot for total loans made (390,712) over Capital One Auto Finance (359,353) through April of 2021, according to AutoCount data.