In 2015, the automotive industry had its best year in more than a decade. Industry analysts are predicting another banner year for car buying in 2016; the economy is strong and the U.S. auto industry is looking to shatter its previous production records. GrooveCar polled 75 credit unions from across the U.S. to discuss areas of loan growth, terms, opportunities and member online research habits, as well as posed the question: How do you plan on attracting members in 2016?
Overall, credit unions polled experienced increased growth over 2014. The largest group, one third of the credit unions, reported increases in the 5% to 10% range, followed by 17 credit unions reporting a 0% to 4% increase over 2014. Of the remaining credit unions, 12 witnessed a 10% to 15% growth, and 10 reported growth of 15% to 25%. Interestingly, seven credit unions experienced growth of 25% or higher, while another four actually saw a decrease since 2014.
Those polled reported they saw the highest growth in pre-owned and used vehicles, followed by new vehicle purchases and leasing. While leasing remains the single greatest area of growth for many credit unions, its success is confined to large populous regions. Leasing on a national level accounts for 28% of new car sales, however in some regions of the nation, that number can be as high as 60% or more.
Auto loan concentration was spread out over four categories. When asked to rank highest to lowest areas of concentration, credit unions ranked borrowers as follows: Super prime, prime, near prime and subprime. Concentrating on borrowers with a credit score of 781 or higher remained a priority for 37% of those polled, however, prime was very close behind with 33% ranking this group as their highest priority.
The 60-month loan term was still the most popular, with 49% of credit unions listing this term, followed closely by the 72-month loan, which was reported as most popular by 43% of credit unions. In third place was the 84-month term, followed by the 48-month term and 96-month term.
When asked to choose which loan product will provide the most opportunity in 2016, more than half of respondents chose the auto loan. Auto loan balances rose by 10.4% during the last 12 months, and credit union new auto loan balances reached the $100 billion milestone in October 2015 for the first time in history.
Membership, assets and loan portfolios are all on the rise, and credit unions realize the need to meet their members' needs on multiple levels. In order to manage growth from all verticals, credit unions did indeed recognize the need to allocate more resources to accomplish this goal, along with instituting aggressive loan rates. Credit unions also reported they would institute a lease payment option, looser underwriting and cash reward incentives.
Auto shopping continues to be conducted primarily online. While searching the Internet is not a new phenomenon, there is a digital shift taking place. Nearly all surveyed credit unions estimated up to 64% of their membership researched their vehicles online prior to purchasing. That number is anticipated to soar as habits continue to drive business across these channels.
In addition to researching a car, 66% of credit unions polled felt auto pricing was the primary reason for conducting an online search. Vehicle information such as overview and inventory came in second, followed by rates and financing, and GAP insurance. Planning for the year ahead, credit unions polled said they plan to institute the following to attract and connect with members: Rate promotions, a car buying resource, cash incentives and deferred payments.
All indicators are pointing to a year filled with active auto purchases. While 2015 reached an all-time high in auto purchases, 2016 should set a new record. While many consumers now keep their cars longer, some segments of the population enjoy less of a long-term commitment. Overall, the near future looks bright for credit unions, as 2016 is expected to be the seventh consecutive year of growth for the auto industry.
Frank Rinaudo is senior vice president for GrooveCar. He can be reached at 631-454-7500 or [email protected].
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