Credit Unions Remain Major Contributors to Auto Finance Industry Growth

While it may seem like déjà vu, credit unions continued to experience higher growth in the automotive finance market than all other lender types in Q3 2018. Credit unions maintained double-digit growth (12.11%) in lender market share. But, what makes the trend more remarkable is that total automotive loan balances only grew 4.7% from a year ago.

Based on findings from Experian’s latest “State of the Automotive Finance Market” report, the automotive lending industry experienced record growth in Q3 2018 as loan balances reached a record high of $1.174 trillion, up from $1.055 trillion in Q3 2016. But it can be argued that this success can be greatly attributed to the impressive numbers credit unions have been able to achieve in the past few years.

Credit unions increased their open automotive loan balances by more than 27%, up from $269 billion in Q3 2016 – more than double the growth rate for overall automotive lending over the past two years (11.28%).

Beyond the market as whole, credit unions have made significant strides in their share of financed vehicles that were originated in Q3 2018. While banks and captives continue to see the highest market share of financed vehicles during the quarter, credit unions continued to narrow the gap. They saw an increase from 21% in Q3 2017 to 22.6% in Q3 2018.

Within the used vehicle segment, credit unions experienced solid growth as they moved from 28.4% in Q3 2017 to 29.9% in Q3 2018.

Reassessed Portfolios Give Credit Unions an Advantage

Q3 2018 showed indication that lenders have reassessed risk in their portfolios, while consumers have also shown improved credit behavior. The percentage of total loan balances for the subprime and deep-subprime categories dropped from a 19.93% share in Q3 2017 to a 19.3% share in Q3 2018.

Conversely, super-prime and prime segments grew by 6.84% and 5.8%, respectively. Nonprime balances saw a 3.45 percentage growth, while subprime balance increased by 2.31%.

The average credit score for consumers purchasing new vehicles rose one point to 717 (724 for new leases and 714 for new vehicle loans), while the average credit score for used vehicles rose two points, reaching 661 overall.

Credit Unions See Low Delinquencies

With a higher percentage of loans to consumers with low credit risk, naturally the market has seen improved delinquency rates – particularly with credit unions. In Q3 2018, 30-day delinquencies for credit union loans and leases dropped to 1.33% from 1.21% in Q3 2017, well below the industry average of 2.23%.

For 60-day delinquencies, credit unions improved from 1.19% to 1.04%. Overall industry delinquencies dropped from 2.43% in Q3 2018 to 2.26% in Q3 2018.

With this data in mind, these trends play out well for credit unions as the automotive lending industry continues to shy away from riskier credit tiers and as consumer credit behavior improves. It is important to note that the auto finance industry needs to closely monitor market trends to watch for any signs of change. Understanding how to leverage the data at hand can help financial institutions make strategic decisions that will help them continue their growth momentum.

Melinda Zabritski is Senior Director of Automotive Solutions for Experian. She can be reached at 714-830-7734 or melinda.zabritski@experian.com.