Auto Lending By The Numbers (2Q17)

From a macro perspective, the auto industry is facing a headwind. On a positive note, credit union auto lending performance remains strong; the rate of growth, however, is a mixed bag.

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From a macro perspective, the auto industry is facing a headwind. Vehicle sales in the United States have come in behind 2016 every month so far this year.

On a positive note, credit union auto lending performance remains strong. Annual growth of 16.3% in the new auto segment underpinned a 13.6% year-over-year increase in total auto balances, which hit $321.4 billion as of mid-year. This marks the 16th consecutive quarter of annual double-digit auto portfolio growth.

The rate of growth, however, is a mixed bag. Annual growth in the total auto portfolio decelerated by 50 basis points versus last year. A more pronounced slowdown was evident in the used auto portfolio. There, annual growth decelerated 1.3 percentage points. Conversely, new auto loan growth accelerated 80 basis points over second quarter 2016.

Auto loans accounted for 34.8% of the total loan portfolio at credit unions as of mid-year. Behind first mortgages, autos represented the second-largest segment of lending. Year-over-year, these loans increased their share of the portfolio by 80 basis points and narrowed the gap on first mortgages to 5.9 percentage points in the second quarter.

The indirect lending portfolio expanded 20.2% year-over-year, remaining a reliable source of growth. By comparison, direct loans grew 5.9% annually. Indirect loans as a percentage of total auto loans reached 56.7% in the second quarter, up 3.1 percentage points year-over-year.

Auto loan penetration expanded 1.06 percentage points annually to top 20.0%, showing that credit unions are increasingly extending auto credit. As more members turn to credit unions to finance their vehicles, however, maintaining sound asset quality is imperative for sustainable growth. The industry’s auto loan delinquency increased 1 basis point annually; auto loan net charge-offs increased 7 basis points year-over-year.

The credit union share of the auto finance market nationally increased 1.4 percentage points annually and hit 18.9% in the second quarter of 2017. Despite softening sales, credit unions are not skipping a beat when it comes to meeting the financing needs of members.

Click the graphs below to enlarge and then continue reading to see how Azalea City, a small credit union, puts big faith in its members.

Auto loans expanded 13.6% annually for credit unions nationally. That’s 7.1 percentage points higher than the median growth rate of 6.5%.



Azalea City Credit Union is a small cooperative that puts big faith in its members. Sure, it charges higher-than- market rates for loans and ends up with more bad loans than most credit unions its size, but that’s the cost of serving its market’s most in-need members.

It is what it is, says Ola Anise, president and CEO of the three-branch cooperative. So, do we accomplish our mission of people helping people, or do we only help people with a Beacon score of 640 or higher? If that’s the case, we might as well be a bank.

The loan rates at Azalea City reflect the risk it takes on by serving C-, D-, and E-paper borrowers. Azalea City’s average interest rate was 8.44% on used cars as of mid-year. The national average was 4.83%.

The result is that Azalea City’s overall yield on loans was 8.08%, compared with 4.51% for all credit unions nationally.

But elevated rates haven’t scared away borrowers. The credit union does not participate in indirect lending, and its auto penetration is much stronger than its asset-based peer group. At mid-year, Azalea City’s auto loan penetration was 25.2% versus 16.1% for credit unions with $20 million to $50 million in assets.

It is also well loaned out, with a second quarter loan-to-share ratio of 85.79%. The national average was 79.61% for all U.S. credit unions and 58.59% for all credit unions with less than $100 million in assets.

Of course, delinquencies and charge-offs were also higher than average at Azalea City. National averages for the second quarter were 0.75% and 0.56%, respectively. At Azalea City, they were 3.08% and 1.59%. The credit union and importantly, its board understands greater service might mean greater risk. And both are OK taking that risk to help real members in need.

We explain to our board members what the numbers mean, Anise says. We also show them how you can get so caught up in the ratios and numbers that you forget these are real people.

Strategy Performance 2Q 2017

Credit unions are indeed having an outstanding 2017 right on the heels of a very strong 2016 and 2015. Eliminating barriers and connecting with members distinguishes credit unions from other financial institutions and makes the movement stronger than it’s ever been. Learn what the industry’s most successful credit unions are doing in this issue of Strategy Performance.


September 1, 2017

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