Credit unions' auto loan penetration among members still sagging

WASHINGTON – At first glance at Callahan & Associates’ June report, credit unions’ auto loan portfolios are in fine shape. After all, they account for 40.1% of CUs’ loan portfolios. As impressive as that number is, there’s still considerable room for improvement when it comes to CUs’ auto loan penetration among their members. When it comes down to it, “Only a minority of members are getting auto loans from credit unions,” says Chip Filson, president/CEO, Callahan & Associates. The problem, Filson explains, is that, “Credit unions tend to take auto lending for granted. They’ve been making them for a long time, they know the framework and the typical size. For credit unions, auto lending is looked on as a traditional, almost routine business without a lot of opportunity for innovation. Credit unions tend to treat auto lending as if there’s little ability to do something with it, except if they want to play around with the rates.” Why is that? Because “auto loans don’t capture the essence of what credit unions are about,” Filson answers. Just looking at the total percentage of auto loans outstanding at credit unions -23%-it would be easy to assume that credit unions are major players in auto lending. But that number is misleading. The fact is an estimated two-thirds to three-quarters of auto loans are originated at the dealership. That means most members associate auto lending with the dealership, not through the credit union, says Filson. The solution to credit unions boosting their auto loan portfolios is through indirect lending. Filson calls this service “the most significant development in auto lending in the last five years” even though credit unions have been relatively slow to catch on to the trend. “Even today there are a good number of credit unions who feel their role is to protect their members from the dealers,” says Filson. “There’s the prevalent feeling that the dealer is trying to take advantage of the member and cross-sell them services.” Filson doesn’t deny this occurs, but with the majority of members getting their auto loans at the dealership, indirect lending is a viable method for credit unions to boost their auto loan penetration figures. -