Big Banks Show Stronger Gains in Auto Loans While CU Growth Diminishes

Fourth-quarter reports from five of the nation’s largest auto lenders showed improvements that indicate the waning growth among credit unions is less about market and more about the market share.

Five of the nation’s largest auto lenders reported holding $301.3 billion in auto loans as of Dec. 31 — 2.5% higher than a year earlier and an improvement from their 1.5% gain as of Sept. 30.

The five banks and their auto loan portfolios at Dec. 31 are:

• Ally Financial Inc., Detroit, $81.1 billion, up 2.8%;
• Capital One Financial Corporation, McLean, Va., $60.4 billion, up 7.1%;
• Wells Fargo & Company, San Francisco, $47.9 billion, up 6.2%;
• JPMorgan Chase & Co., New York, $61.5 billion, down -3.2%;
• Bank of America, Charlotte, N.C., $50.4 billion, up 0.6%.

At the end of the third quarter those five banks held about 25% of the nation’s $1.19 trillion in total auto loans reported by the Fed.

By comparison, the largest automotive lender among credit unions is Navy Federal Credit Union of Vienna, Va. with $14.6 billion in loans as of Sept. 30. It is also the nation’s largest credit union overall ($110.1 billion in assets, 8.9 million members).

While analysts noted their disappointment with Wells Fargo missing earnings expectations, credit unions might take note of their fine print in their report: Wells Fargo generated $6.9 billion in auto loans in the last three months of 2019, up 45% from 2018’s fourth quarter, “reflecting a renewed emphasis on growing auto loans following the restructuring of the business.”

Fourth-quarter originations rose 14.8% to $9.3 billion at Ally Financial and 23.1% at Capital One.

Based on the Fed total for all lenders and credit union totals from CUNA and CUNA Mutual Group, credit unions had about 32% of loan amounts outstanding as of Sept. 30.

Auto lending among credit unions had been outpacing other lenders for several years, but in recent months the increases have diminished.

The Credit Union Trends Report from CUNA Mutual Group of Madison, Wis., released last week showed credit unions held $380.3 billion in car loans as of Nov. 30, up 2.7% from a year earlier. New car loans were flat at $148.2 billion, while used car loans grew 4.2% to $232.1 billion.

The CUNA Mutual report represented a slight downward revision from CUNA estimates for November released earlier.

Steven Rick, chief economist for CUNA Mutual Group, cited several reasons for the slowing pace:

• Credit unions raised their new auto loan interest rates 2 percentage points over the last year, reaching an average of 5.7% in November.
• Rapid loan originations two to three years ago precipitated larger loan balance amortization today. For example, a member receiving a $30,000, four-year new auto loan originated at a 4% interest rate on Jan. 1, 2017 would start 2020 owing just $7,955.
• Members used “cash out” funds from mortgage refinances to pay off auto loans.
• Many of the credit unions with the highest growth rates were ones that had recently adopted indirect financing programs. That trend has leveled off and those programs are now growing at more mature rates.
• Lower new car sales. Manufacturers sold 17.1 million cars in 2019, down 1.6% from 2018. CUNA Mutual also expects auto sales to slow another 2% in 2020 to 16.7 million.

However, automotive analysts at Edmunds in Santa Monica, Calif., forecasted that 17.1 million new vehicles will be sold in 2020, matching last year’s tally and marking the sixth year in a row that new auto sales will top 17 million.

“The auto industry has some decent tailwinds heading into 2020,” Jessica Caldwell, executive director of industry insights at Edmunds, said. “Strong economic factors such as low unemployment and high consumer confidence are carrying over from last year, finance rates are expected to remain relatively stable, and this is a presidential election year, which historically tends to correspond with a year-over-year lift in new vehicle sales.”

Rising prices will limit growth. According to Edmunds data, the average transaction price for a new vehicle in 2019 climbed to an all-time record of $37,183.

“Prices are shooting up because shoppers are opting for pricey SUVs and trucks packed with more high-tech options than ever before,” Caldwell said. “These increased costs, combined with the discontinuation of more affordable options like domestic passenger cars, could prompt shoppers to shift their focus to the used market — or delay their purchase altogether.”