Credit union economists have mixed feelings on whether new vehicle loans will really see some steam this year.

While the rate of portfolio decline at credit unions is slowing, CUNA Mutual Group Chief Economist Dave Colby said his discussions with credit union leaders nationwide indicate the slowdown in the rate of decline is from reduced levels of amortization, payoffs and defaults, not new loan originations.

“Credit unions continue to slowly build their used vehicle loan portfolios on an annual basis. The new vehicle portfolio is less of a drag on growth after hitting peak contraction of 17.1% in October 2010,” Colby said in CUNA Mutual's May Credit Union Trends Report.

The current forecast assumes that continued declines in new vehicle loans will not be offset by modest gains in the used portfolio, Colby said, adding he expects vehicle loans to fall again in 2011 before turning fractionally positive in mid-to-late 2012.

Year-over-year total vehicle loan demand for credit unions increased from February's pace of a negative 4.8% to a negative 4.1% in March, according to NAFCU's May Economic and CU Issues Monitor.

New vehicle lending for all credit unions year over year through March continued to contract by 14.5% to $61.9 billion while used vehicle loan demand grew by 3.4% to $103.1 billion. At the end of March, vehicles totaled $165 billion, which comprised 28.7% of total loans.  

In an early May survey of the industry's five regions, NAFCU found that expectations for new vehicle loan demand were negative. Four of the five regions are expecting a decrease in loan demand over the next 12 months. Meanwhile, expectations for used vehicle loans were positive, will all five regions expecting an increase in loan demand for the same time period.

Still, NAFCU Chief Economist Tun Wai is optimistic about new vehicle loans, saying in the report “the outlook for the new vehicle market is improving and should show a steady upward trend as the overall U.S. economy improves.”