Credit Unions Losing Auto Loans to Captives & Cash
Experian finds shares falling for both credit unions and banks.
A report from Experian showed that captive lenders have not only taken a significant share of loans for new cars from both credit unions and banks, they have also cut into the used car market.
Experian’s Finance Market Report for the third quarter showed captives’ share of the number of new car loans and leases rose from 54.2% in 2019’s third quarter to 59.1% in the three months ending Sept. 30.
Captives are a small player in used car lending, but their share of the number of loans rose 3.4 percentage points to 11.9% in the third quarter.
Captives are lending subsidiaries of manufacturers and include Toyota Financial Services, General Motors Financial, Ford Credit, Infiniti Financing and Volkswagen Credit. Their gains this year have largely been the result of aggressive zero-percent financing offers after COVID-19 was declared a pandemic in March.
Also gaining in the third quarter were cash sales. Experian found cash sales for new cars accounted for 17.6% of new car deals in the third quarter, up from 13% a year earlier. Cash was used for 66.3% of used car purchases in the third quarter, up 6.1 points.
While banks began losing share in the last 12 months, credit unions’ share of loans has been falling for two years.
Credit unions accounted for 10.6% of the number of new car loans in the third quarter, down from 11.6% a year earlier and 14% in 2018’s third quarter. Their share of used car loans was 29.1% in the third quarter, down from 29.4% a year earlier and 32.7% in 2018’s third quarter.
Used car values continued to rise. The average adjusted clean retail price was $20,083 in the third quarter, up from $18,989 a year earlier. However, Edmunds, a car-buying analytics company based in Santa Monica, Calif., reported Nov. 12 that used car values were beginning to fall from September to October, and predicted the trend would continue this year.
Other trends found by Experian, an Ireland-based company that provides credit reporting and marketing services, included:
- Many prime borrowers (661 to 850) shifted back to the used car market in the third quarter after many captives ended aggressive promotions that were put in place last spring.
- Amounts borrowed for new and used cars rose in the third quarter largely because of “consumer preference, with consumers leaning toward larger, more expensive vehicles,” according to Experian. Small SUVs were the most purchased vehicles, making up 26% of loans in the third quarter, followed by mid-sized SUVs at 24.2%.
- Average credit scores for new car loans rose steeply from 719 in 2019’s third quarter to 725 in this year’s third quarter.
- Monthly payments also rose, but at rates lower than gains in loan amounts. This was a product of longer terms and lower interest rates.
“With affordability still top of mind, particularly during the pandemic, lower interest rates have certainly helped consumers keep monthly payments at a manageable level,” Melinda Zabritski, Experian’s senior director of automotive financial solutions and author of the report, said.
“As the market evolves and financial situations shift, it’s important for lenders and dealers to stay close to the trends and make strategic decisions that help keep the industry moving forward and consumers in their vehicles,” she said.
Despite the shifts in market share, overall automotive portfolio growth this year has been relatively steady and only slightly below par. The Fed’s G-19 Consumer Credit Report showed this year started with a weak 3.2% gain in the first quarter compared with a year earlier. Gains were 3.5% in the second quarter and 3.6% in the third quarter.
The third-quarter gain is just under the median 12-month growth of 3.8% from December 2015 through December 2019, including a spike that reached 7.1% in December 2016.