Shift Auto Lending Into Fifth Gear

While credit union auto portfolio has grown in recent years, here’s what institutions can do to further broaden their market reach in the face of competition.

In terms of auto loans, credit unions have pushed the proverbial pedal to the metaphorical metal. Auto lending is growing across the board, and as with any growing market, the potential exists for competitors to grab their share.

Although performance data suggests the industry’s auto portfolio is solid, credit unions are using the four strategies outlined here in Part 2 to expand their auto businesses into untapped member segments.

Part 1: The Auto Portfolio Grows

Credit union auto loans, a $215 billion business as of June 30 2014, have gradually increased as a percentage of the total balance sheet over the past 10 quarters, from 28.75% in December 2011 to 31.51% in June 2014.

Auto loans as a percentage of total loans
For all U.S. credit unions | Data as of June 30
Callahan Associates |


Source: Peer-to-Peer Analyticsby Callahan Associates

Total auto loan growth has steadily risen at credit unions after bottoming out in December 2010. The industry has posted growth greater than 5% in every quarter since June 2012, and as of June 2014, auto loan growth at all U.S. credit unions totaled 14.08%.

Total auto loan growth
For all U.S. credit unions | Data as of June 30
Callahan Associates |


Source: Peer-to-Peer Analytics by Callahan Associates

New and used auto sales are on the rise. In the case of new auto loan growth, it has increased from 1.22% in June 2012 to 17.59% in June 2014. Used auto loan growth has steadily climbed in the past five years and reached 12.16% in June 2014.

New vs used auto loan growth
For all U.S. credit unions | Data as of June 30
Callahan Associates |


Source: Peer-to-Peer Analytics by Callahan Associates

Additionally, after a lull stretching from 2009 to the beginning of 2012, both auto loan penetration and average auto loan balance are on the rise. Penetration hit 16.95% at midyear 2014, the highest total since December 2009 when it hit 17.24%.

Auto loan penetration
For all U.S. credit unions | Data as of June 30
Callahan Associates |


Source: Peer-to-Peer Analytics by Callahan Associates

The current average auto loan balance of $12,789 is approximately 5% higher than this time last year and almost 16% higher that the low point of $11,043 in December 2010.

Average auto loan balance
For all U.S. credit unions | Data as of June 30
Callahan Associates |


Source: Peer-to-Peer Analytics by Callahan Associates

Part 2: 4 Strategies To Consider

The following strategies are just a few ways credit unions across the United States are building off the performance of the industry’s auto portfolio.

It’s Showtime

Despite operating for more than six decades in the Bay Area, San Francisco Federal Credit Union ($910M, San Francisco, CA) struggled with brand recognition. In order to change that and get in front of potential members who were in the market to purchase a vehicle, the institution jumped at an opportunity to sponsor the San Francisco International Auto Show.

The credit union initially wanted to use its sponsorship as a chance to improve its brand recognition and educate attendees on the benefits of credit union financing; however, the credit union was able to pre-approve $175,000 in loans and open an unspecified number of new memberships as a result of its car show participation. Read more in Kick The Tires And Light The Fires.

Ladies’ Night

Great Lakes Credit Union ($623M, North Chicago, IL) struggled with membership and loan volume until 2012. That’s the year the credit union decided to focus on its outreach to women by hosting ladies-only meetings that offered attendees financial education and guidance. These meetings positively affected the balance sheet, says Sue Malo, GLCU’s associate vice president of business development.

Without a doubt, a big part of our success here has been our niche marketing and outreach to women, Malo said in a 2014 interview for the article Vetted And Verified.

By the third quarter 2013, the credit union posted a 30.8% annualized membership growth rate. Additionally, loans had grown 24.4% year-over-year, influenced by a 62% growth in new auto and a 104% growth in used auto.

The Young And The Restless

As credit unions know by now, younger borrowers will comprise a majority of the buying public in less than 10 years. And for many in this demographic, their first major independent financial commitment will be an auto loan. The question, then, for credit unions is: What strategies will attract these would-be members?

Darden Employees Credit Union ($36M, Orlando, FL), Arlington Community Federal Credit Union ($220M, Arlington, VA), and Unitus Community Credit Union ($937M, Portland, OR) use a variety of strategies such as meeting Gen Y where it works, starting younger and working harder, and matching the mentality of the desired membership to boost their auto lending to young borrowers. Read more about these strategies in How To Boost Auto Lending To Young Borrowers.

Cars And More

When it comes to auto loan portfolio growth, credit unions must be able to think outside the car. According to the Recreation Vehicle Industry Association, in 2012 shipments of towable RVs and motor homes were up 14.6% and 27.3%, respectively, year-over-year. Motorcycle sales were up 2.6% in the same timeframe, according to the Motorcycle Industry Council.

Element Federal Credit Union ($28M, Charleston, WV), WesTex Community Credit Union ($62M, Kermit, TX), and Spokane Teachers Credit Union ($1.9B, Spokane, WA), all expanded the breadth of their auto portfolios to focus more heavily on RVs, boats, motorcycles, and ATVs, the kind of vehicles perfectly suited to members’ outdoor lifestyles. Element, especially, has achieved success with this strategy. It has leveraged relationships with seven local dealerships and now holds 19% of its auto portfolio in recreational vehicles. Read more in Think Outside The Car.

September 29, 2014

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