Credit union auto loans have grown 14% annually since 2014, while other loans grew at an 8% annual rate. Auto loans reached $290 billion by the end of the third quarter, accounting for 34% of total loans, up from 29% near the bottom of the recession in December 2010.

Credit union executives don't expect car sales and loans to grow at their recent record pace in 2017, but they do expect growth.

Only about a third of car loans are generated directly. For the past 20 years, indirect lending has been growing and now accounts for about 65% of credit union auto loans, CU Direct President/CEO Tony Boutelle said. The Ontario, Calif.-based CUSO serves more than 1,000 credit unions and has an indirect lending platform that connects to 13,000 U.S. dealers.

For CU Direct's credit union customers, indirect lending is "a very solid book of business for them," he said.

Andrew Downin, senior managing director of research for Filene Research Institute, said credit unions have to balance the advantage of dealing directly with their members, typically saving them money, against catering to what members – and most other consumers – actually want to do: Choose, finance and buy their car at one place and time.

"We see more and more credit unions looking for an appropriate blend of the two," Downin said.

Running counter to that trend is State Employees' Credit Union in Raleigh, N.C., which exclusively generates auto loans directly.

Its formula seems to be working. SECU ($34.3 billion in assets, 2,175,972 members) had $2.5 billion in car loans on Nov. 30, up 24% from a year earlier. The credit union is North Carolina's third-largest car lender, behind only Wells Fargo and Ally Auto Finance.

Mark Coburn, SECU's SVP of lending development, said indirect lending might increase the credit union's portfolio, but he believes the credit union better serves its members by lending directly.

"We find it more important to discuss with our members in person and delve into their individual needs," Coburn said. "We want to look at their entire financial picture to make sure that we are helping them overall in the best manner possible, not to just put another loan on the books. We save our average member a bunch of money, especially if they're not a high-credit score borrower."

However, most credit unions generate loans through both channels. Indirect loans account for about 15% to 20% of First Service's $330 million in auto loans as of Sept. 30. Its underwriting standards are tighter for them, accepting only prime and near-prime deals.

At SAFE Federal Credit Union in Sumter, S.C., about 40% of auto loans are generated indirectly through dealers throughout central South Carolina.

SAFE ($1 billion in assets, 113,694 members) has ramped up its indirect lending in the last three to four years as its managers became more comfortable with the approach.

"We think of it as just another delivery channel for our members," Vice President of Lending Ronnie Warner said. "We may have 20 or so brick-and-mortar branches, but if you are aligned with 60 or 70 auto dealers, those are just more options your members have to do business with you."

SAFE held $275 million in auto loans on Sept. 30, accounting for 46% of total loans. The value of auto loans has been increasing about 25% a year since 2014, compared with about 5% for other types of loans. Warner expects auto loans to grow this year at a more moderate pace of 10% to 15%.

SAFE Vice President of Marketing Toby Hayes said the credit union's extensive branch network in the Columbia, S.C., market gives it better leverage to draw members created through indirect loans to open checking accounts or take out other loans. "If we didn't have that strong branch network, then we wouldn't have that relationship with new indirect members."

Warner said a downside of indirect lending is that the credit union must trust what is often its first contact with a new member to dealership staff who have not been trained by the credit union. "They're an intermediary between us and our customers," he said. "There have been occasions when we've wished a dealership was more tactful."

Direct lending requires more money and management than indirect lending, Hayes said. "To reach the kind of successes we've seen at SAFE Federal," he said, "it takes great member service, it takes great cross selling and training, and it also takes marketing dollars to make sure your brands and programs are visible consistently throughout the market."

He added, "It really takes the buy-in from the board to the front line. Some of that buy-in takes dollars, but the return on that has been tremendous."

In North Carolina, SECU has staff trained to talk with members about what they want and what they can afford. They talk with members about price. Members who qualify for a loan will get the same rate as any other member, regardless of credit score. And they will leave the credit union with a check that can be signed at the dealership for a pre-approved limit.

"We have members who are members for life, and that trust and financial planning that we do with them is extremely important," Coburn said. "We have a lot of repeat business based on our reputation. That's important: That's what our biggest value is."

SECU issues about 1,000 pre-approval checks each month. Some members get flipped into other loans by dealers. Some members never stop in at the credit union. And non-members at dealerships won't have the choice of getting a loan through SECU.

"Admittedly, we miss out on some business," Coburn said. "But in order to partner with someone to do indirect lending, you're putting your faith and trust in the way that transaction is going to occur. We know, historically, it has not always been a fair, transparent and non-discriminatory way of doing lending."

Like most credit unions, a large portion of SECU's direct lending is generated by refinancing expensive loans made by dealers and others.

SECU studies credit reports to target about 3,000 to 4,000 members a quarter who have financed a car with another lender at what appears to be a significantly higher interest rate than they would get through SECU. The mailers invite members to refinance their loans through SECU and about 10% of those targeted open a refinance loan.

"It's phenomenal," Coburn said. "These response rates are really high. Usually 1% to 3% is an industry expectation."

Often the member has taken out a loan with an interest rate far higher than those offered by SECU, which are currently around 4.75% for a used car and 3.75% or less for a new car. "They're paying 9% or 10% on average," he said. "A lot of those transactions are double digit, sometimes as high as 14% to 17%."

Dealers might match a credit union's rate, but they typically charge more for add-ons, such as GAP and warranties. At SECU, GAP policies cost $275, compared with $699 to $899 charged by dealers, Coburn said. First Service also sells GAP and warranties at about half the price at dealerships, but still generates about $2 million a year from them.

McWethy said not only does direct lending save members money, it generates higher returns for the credit union. Credit unions that emphasize indirect lending "leave a lot of income on the table," he said. "I hurt seeing that for credit unions."