Navigating the complexities of the indirect auto loan industry requires a keen understanding of market dynamics, regulatory changes, and consumer behavior.
While we continue to see challenges, we have learned that we are no longer hearing liquidity is a problem in this second quarter of 2024 from our peers and partners in the Credit Union space.
Can you provide an overview of the current state of the indirect auto loan industry?
The indirect auto industry goes along with auto sales. Automotive sales are slightly up over 2023 and the forecast for the remainder of 2024 is the same: slow, steady growth. The change in the current indirect environment is many lenders are no longer dealing with liquidity issues, and now we have to understand how to re-engage with dealer partners while at the same time remaining profitable and/or competitive.
How do credit unions fit into the indirect auto loan industry?
Credit unions are a large part of the overall auto business. Whereas credit unions used to be very large on only used vehicle financing, today they are competitive in both new and used financing. Credit unions have also partnered with fintechs and other organizations to enhance their service offerings to be able to compete with national banks and captive auto lenders. In addition, many credit unions are expanding their auto loan portfolios by buying full-spectrum loans and using insurance products to mitigate potential charge-offs or losses in near-prime or sub-prime categories. Partnerships with companies like Open Lending further enable credit unions to grow their portfolios while managing risk effectively. This combination of strategic offerings, risk management, and strong relationships is essential for credit unions to thrive in the competitive auto loan market.
With the market becoming more competitive, what are the main challenges credit unions face?
As many lenders seek to originate more loans, credit unions find themselves in a highly competitive environment where they must excel in certain categories to stand out. Whether it’s offering competitive rates, back-end product allowances, dealer reserves, or favorable loan-to-value (LTV) ratios, credit unions need to carefully evaluate their strengths. Demonstrating to dealers why they should choose to do business with them involves not only showcasing these offerings but also building strong, trusting relationships. This dual approach is essential for credit unions to thrive in the competitive auto loan market.
What strategies are credit unions employing to remain competitive in the indirect auto loan market?
Many credit unions are actively engaging with auto dealers through specific member sales events, highlighting their shared commitment to community involvement. By allowing dealers to sell products during these events, credit unions demonstrate their alignment with dealers in supporting local schools, community events, and philanthropies. Additionally, the relationships between credit unions and dealers can significantly improve when credit unions listen to what dealers value most: consistent underwriting practices and speedy funding. Both elements are essential for dealership profitability and play a crucial role in dealers’ choice of lenders.
How is technology shaping the indirect auto loan industry for credit unions?
With the rising rates of fraud, credit unions are quickly adopting anti-fraud solutions such as Digital Onboarding Verification (DOV) by CRIF, our digital onboarding product, to prevent fraudulent loan applications. Lenders are also starting to deploy AI-decisioning technology to render decisions quicker. Some indirect lending providers and vendors are using technology to enhance communication, which includes document classification and OCR technology to speed up and ensure quality between the two.
What is your outlook for the indirect auto loan industry and credit unions in the near future?
For the remainder of 2024, the outlook looks to be slow, steady growth. It is also my opinion that credit unions will grow in the new vehicle financing market. We are also seeing many credit unions expand their territories to new markets and states to give themselves additional opportunities to grow.
Conclusion
In summary, credit unions are navigating a very competitive market. The easing of liquidity issues in the first half of 2024 has allowed credit unions to focus on re-engaging with dealer partners and remaining competitive. Credit unions are leveraging their unique strengths, such as competitive rates, innovative technology, and strong customer relationships, to stand out in the market.
As they continue to grow and adapt, credit unions are well-positioned to increase their market share in both new and used vehicle financing.
For more insights and information about CRIF Select’s services, please visit our website or contact us directly. Stay ahead of the curve by partnering with CRIF Select and take advantage of our expertise in the indirect auto loan industry.
