Why is Credit Union Auto Loan Growth Up?
I was recently asked during an interview what I thought credit unions were doing differently to account for credit union auto loan growth being on the rise. The question kind of caught me off guard and I didn’t have a ready answer. I do know that credit unions are becoming more data savvy — and I know that more credit unions are participating in indirect lending than in year’s past. Further, at CU Direct, we do see an increase in applications being processed through the CUDL platform. These are all indicators that credit unions are doing more auto loans. But, does it mean that credit unions have found the secret formula to capture more auto finance market share?
The first question we need to address is, “are credit unions aggregately making more auto loans than they had in the past?” The answer is yes, credit union auto loan volume is up, over 50% since 2011. The next question is “has credit union market share increased?” The answer again is yes, fantastic! But, there is one more question that needs to be asked. “Is credit union market share growing faster than other auto finance companies?” With the exception of banks, credit union market share is not growing faster than other auto lenders. And, while not growing, banks have still maintained market share over the last five years.
Why are market share gains important when evaluating the root cause of loan growth? Because they would indicate that that credit unions have gained a true competitive edge. If the market is growing and credit unions are simply maintaining the same piece of the market, then our competitors are also maintaining their market share, and there has been little change in consumer understanding of the benefits that credit unions offer.
Based on the numbers, it appears that all prime lenders, again except banks, have grown their market share at the same rate over the last four years. These gains have come primarily from consumers moving from self-pay, or cash payments, and buy-here, pay-here lots, to financing. Consumers are realizing the benefits of lower finance rates, improved credit, and/or lenders willingness to take on more risk. One would expect all of these trends in a healing economy. It can be surmised, therefore, that all main stream lenders are benefitting from a healthier economy and stronger consumer confidence.
The intent here is not to rain on the collective parade of credit unions, or all lenders in general for that matter. The goal is to call attention to the need for strategic changes in credit union lending that create sustainable growth through good times and bad. If we rely on the rise and fall of consumer demand, then we must be willing to accept the alternative – the potential for shrinking loan balances and lower profitability in economic downturns. Anxiety in an economic downturn is reasonable to expect as adjustments are made to react to changing conditions. But a strategy to gain market share, rather than simply grow portfolios, can help to weather the ups and downs of a recovering, but weak economy.
Here are some key actions that credit unions should keep in mind to gain the confidence of consumers:
Understand what consumers need and react quickly to the changes:
Consumer needs change over time. Thirty years ago, lenders were sweating consumer demand for 60 month auto loans. Many resisted for a time, but then 60 months became the norm. We now have consumers demanding 84 and even 96-month loans. This may or may not be a good idea, but it is an example of something that lenders need to consider, if it makes sense, to gain market share. As consumer lenders, it is important that credit unions understand changes in consumer demand.
Convenience, convenience, convenience
What is convenience? This is one of the easiest questions to answer, but one that is often dismissed. Consumers typically have some level of discomfort with the auto buying experience. It can be a long and arduous affair. Any financial institution that can understand that and create a disrupter in the way things are done today will capture more market share. That may be why the “Other” column in the chart above is growing at a fast rate.
Let’s face it, if we were asked individually what the most convenient auto-buying process would look like, most of us would say the ability to easily locate our desired vehicle, to research and secure a fair price, and if possible, simply drive the car off the dealer’s lot without visiting the finance department. Carmax® has made a strong attempt to meet this ideal from a dealer perspective.
CU Direct has helped credit union lenders achieve the same result. With AutoSMART’s onboard research tools and vehicle search engine, along with AutoPREMIER’s concierge services, credit unions can streamline the process for members, making it easier to locate and finance their next vehicle. CU Direct’s CUDL platform is the only indirect platform that allows credit unions to pre-approve members and make those pre-approvals available to the dealer, shortening the vehicle buying process. The AutoSMART app even gives members the ability to get approved for a loan right at the dealership.
Service and Accessibility
Credit unions’ best loan prospects are its members. But you have to “wow” them with your service to help ensure your top of mind before they start shopping for a vehicle. Think of your member touch points and ask yourself if you’re optimizing the experience. Does your centralized customer service treat all members with respect and strive to achieve customer satisfaction? Remember, many indirect members will never come to a branch. Do you communicate with your auto borrowers to let them know how much you appreciate their business and that you are willing to help them with their other financial needs? Do your online credit applications actually work? Can members make payments to their loans online? Can they get a payoff online? Do members know they can make payments at any credit union using the CO-OP Network? These are all things that other marketplace lenders offer to encourage borrowers to come back.
It is important, while times are good, for credit unions to take a close look at the landscape and determine what impact they can have on the way consumers do business – before the next downturn.