Navigating The Waves Of The Dynamic Auto Marketplace

Heritage Community Credit Union continues to lend amid declines in auto production and sales.

In today’s competitive marketplace, it’s imperative for credit unions to have a strong auto lending strategy.

Auto loans comprise the majority of the credit union loan portfolio and are second in portfolio share (34.9%) only to first mortgages (40.7%). In the second quarter of 2017, new and used auto loans increased 16.4% and 12.0% year-over-year, respectively,resulting in a total auto loan growth of 13.7% annually.

* Data for 5,757 credit unions reporting second quarter data.

However, on a macro level, the U.S. auto market has been battling headwinds. According to Automotive News, auto sales are expected to decline in July for the seventh straight month,and Edmonds is projecting a 6.2% year-over-year decline from July 2016.

As sustainability questions are raised about the broader auto market, credit unions continue to step up to fulfill the auto financing needs of their members.

One credit union that has posted notable growth in its auto portfolio is Heritage Community Credit Union($201.8M, Rancho Cordova, CA). Since fourth quarter 2013, Heritage Community has posted double-digit auto loan growth on a consistent basis, including 38.4% annual growth rate in the second quarter of 2017. The credit union also has been steadily growing its wallet share within its member baseits auto loan penetration is 46.5 percentage points higher than its NCUA asset-based peer group.

In the first quarter of 2014, Heritage Community’s concentration of auto loans exceed first mortgages 38.2% versus 38.0% for the first time since the third quarter of 2011. As of second quarter 2017, auto loans accounted for 56.5% of the credit union’s loan portfolio, up 6.5 percentage points year-over-year, whereas the first mortgage share of the portfolio declined 60 basis points to 26.3%.

*Data for Heritage Community Credit Union.

Across the industry, many credit unions are scaling back their indirect lending operations for a number of reasons, including concentration risk and profitability concerns as well as member engagement challenges. Year-over-year growth of indirect balancesin the second quarter is projected to decelerate 1.6 percentage points from last quarter’s annual growth of 22.0%.

Although the national indirect portfolio continues to expand at a projected annual rate of 20.4%, credit unions like Heritage Community are putting an emphasis on direct lending as part of their overall auto lending strategy. In fact, in second quarter 2017, the credit union’s direct loan balances increased 97.5% year-over-year and surpassed indirect balances.

*Data for Heritage Community Credit Union.

Despite decelerating growth for both financing types, indirect and direct balances across the credit union industry continue to expand. Indirect balances are projected to reach $182.5 billion in the second quarter of 2017, compared with direct balancesof $139.2 billion.

Heritage Community is an example of a credit union navigating the waves of a dynamic auto marketplace by extending credit to members in need of a vehicle.

Catch Up On 2Q 2017 Trendwatch

This must-attend quarterly event for credit union leaders covers performance trends, industry success stories, and areas of opportunity. Attendees will find insight they won’t find anywhere else weeks before the official NCUA datarelease.

August 10, 2017

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