Credit Union Auto Loans Recharge After Sluggish Last Couple of Years

WASHINGTON – After two years of witnessing virtually no growth in their auto loan activity, early numbers for 2004 indicate credit unions may finally have turned the page on the latest chapter of their auto lending activity history. “Zero percent financing just about took credit unions out of the market for awhile, ” says Callahan & Associates Executive Vice President Jay Johnson, “ but we’re starting to see things pick up in the national auto market, as well as for credit unions. Auto lending has had the most significant impact of any market credit unions participate in.” Despite a soft economy when consumers typically hold back on making luxury, non-commodity type of purchases, auto lending still accounts for about 39% of the total credit union loan portfolio. The upswing in credit unions’ auto loan activity mirrors nationwide U.S. sales. Ongoing incentive battles between the Big 3 auto manufacturers helped push U.S. auto sales to historically high levels in 2003, and Callahan opines those incentives should continue to help boost sales in 2004. What has this meant for credit unions? According to the latest statistics from Callahan & Associates for December 2003, for the first time in seven quarters, new auto loan growth outpaced used auto loan growth. Johnson attributes the uptick in auto loan growth to members’ increased awareness that manufacturers’ incentives and 0% financing offers aren’t for everyone. Credit unions’ message to members is getting through, says Johnson. Callahan’s statistics also show that since January 2003, credit unions’ indirect lending market share has steadily increased and currently stands at 17.3%. “When it comes to indirect lending, the question for credit unions used to be `do we want to get in to it.’ But now indirect lending has become a more accepted business,” says Johnson. Callahan data show that at yearend more than 1,300 credit unions were involved with indirect lending programs. That’s up from 1,100 at yearend 2003. Those are the types of numbers Credit Union Direct Lending President/CEO Tony Boutelle likes to hear. But while encouraging credit unions to get involved with indirect lending, Boutelle stresses that credit unions considering offering this product need to be aware of the risks, as well as the benefits. “Credit unions should realize that when a dealer employee is taking information from a member for a loan, it’s not a controlled environment,” he explains. “This is nothing new, but it does require more diligence from the credit union. This is especially the case when it’s a new member. “Employees of dealerships are 100% commission employees. If they stretch the truth to make a sale it means a higher risk for the credit union. In most cases when it is detected that an employee has used inaccurate information on a loan application, the dealership is amenable to take prompt corrective action. But it’s a situation credit unions have to be aware of,” Boutelle adds. The CUDL president says auto lending will continue to be a competitive environment, and “that means credit unions will have to react with more creativity.” -