Credit Unions Continue to Make Real Gains in the Auto Lending Marketplace, Whatís Next?

by Bill Meyer
Published in Auto Lending

Credit unions continued to make significant advances in the auto lending marketplace in 2017.

A testament to credit unionsí strong performance in auto lending, the 1,100-plus credit unions on CU Directís CUDL platform topped all other lenders in 2017, funding 1.8 million loans, and becoming the nationís number one lender as an aggregate.

CUDL credit unions also experienced 16% growth, leading all Top 10 auto lenders in 2017, including powerhouse lenders Capital One Auto Finance and Ally, which ranked #2 and #3, respectively. This growth was notable, as all but one of the Top 10 lenders — other than CU Direct credit unions — experienced a decrease in auto lending. Further reflecting their growing marketplace strength, CU Direct credit unions have increased auto loans 100.8% since 2013.

During CU Directís recent quarterly State of the Credit Union Auto Lending Market webcast, we took a closer look at credit union auto lending performance and the contributing factors for their continued growth.

The webcast revealed that credit unions have matured into leaders in auto lending in two key areas.

1. Market Share
Overall, the automobile finance sector experienced a 4.74% year-over-year decline through Q3 of 2017; however, credit unions were up nearly 12% during that same time. Not surprisingly, that fueled the increase in credit union market share.

Part of the market share grab can be credited to other lenders tightening credit standards as their delinquencies rose. Even as credit unions continue to grow their portfolios, they report comparatively high average credit scores compared to their competitors. Overall, the average credit union auto borrower credit score is just over 750, with used car borrowers averaging credit scores around 740. Members financing new cars had average credit scores of around 775 through the third quarter of 2017.

As of Sept. 30, 2017, credit union market share increased to 26%, up from 23% the previous quarter, according to AutoCount. Meanwhile, bank market share fell more than 5.5% during that same period, to 37%, while finance companies and captives fell 2.25% and 1.67% respectively. If that trend continues, we could see credit unions make a real push to further distance themselves from both captives and finance companies, while also closing the gap with banks in market share. In five states Ė Utah, Idaho, Oregon, Alaska and Washington Ė credit unions own 50% or more of the auto lending market.

The cause of this gain is two-fold. Weíve seen a shift away from leasing, back into retail auto lending, driven by a strong economy and changes in manufacturer lease programs that make them less affordable and less appealing. Credit unionsí strong relationships with dealers and competitive auto lending programs allowed them to capitalize on the trend of increased new auto loans.

2. Technology
In addition to smart risk management and strong auto lending programs, credit unions are recognizing dealerís calls for improved technology. What dealers want most is a fast lender response to financing requests and efficiency when closing the transaction. In short, they want technological solutions.

Efficiency and adoption of new technology helps credit unions not only meet member and dealer needs, but also grow auto loans. CU Direct has continued to invest in developing technology over the past few years to help credit unions achieve these goals.

The new CUDL platform was launched in 2017, streamlining the financing process between credit unions and dealers, and we reached a milestone of 100 credit unions on our innovative Lending 360 loan origination system in October.

These technological advances are valuable to dealers, and when combined with the superior relationships our credit unions have built with dealers across the country, have resulted in record market share.

Economic Outlook

Overall, the economy looks strong for 2018 and supports a continued strong outlook for auto lending.

In his presentation during our auto lending trends webcast, economist Elliot Eisenberg shared data that showed strong economic indicators across the board, including low unemployment rates, high consumer confidence, robust non-discretionary spending and 16 million-plus automobiles forecasted to be sold this year. Eisenberg further noted that there arenít any red flags that indicate a looming recession.

Focus on Service
With a strong, and growing position in the marketplace, credit unions need to lead with service as a competitive advantage. Credit unions must position themselves as the best lenders and the best partners for dealers. This strategy will benefit credit unions with even more market share, and benefit members with increased access to credit union lending.

Auto lending is the backbone of credit unionsí loan portfolios. Credit unions continue to not only compete in the auto lending arena, but to outperform much of the marketplace, improving their market presence, and capturing more loans.

About the Author

Bill Meyer
Bill Meyer is the PR and Corporate Communications Lead for CU Direct.