N.C.’s SECU Strategy Leans on Used Cars
Lower exposure to new car lending limits the pandemic’s hit to loan production.
The pandemic put a dent in credit union auto lending in 2020, and North Carolina’s State Employees’ Credit Union was no exception.
Mark Coburn, SECU’s SVP for lending development, said a minority of workers lost their jobs and couldn’t afford to borrow. Many of the rest began working from home, allowing them to postpone buying a newer car.
“Given the economic uncertainty the pandemic has presented us with, many members and consumers in general have become more cautious with how they spend their money and have been hesitant to make large purchases unless absolutely necessary,” Coburn said.
SECU ($47.4 billion in assets, 2.5 million members) is the nation’s second-largest credit union by fourth-quarter assets, and the 11th-largest auto lender based on its Dec. 31 portfolio of $2.9 billion new and used car loans, up 0.3% from a year earlier.
Like many others, the credit union’s originations dipped sharply in the second quarter, and only partly recovered in the second half. But it benefited from its strategies of concentrating on used cars, which generally fared better for credit unions, and continuing to stay out of indirect lending, which is highly price sensitive.
Its new car originations bounced back from $60.9 million in the second quarter to $88.2 million in the third quarter, which was still 14.5% lower than 2019′s third quarter.
Used car originations rose from $250.5 million in the second quarter to $316.5 million in the third quarter, which was up 5.4% from 2019′s third quarter.
Total originations in the third quarter were only slightly greater than a year earlier, and fourth quarter originations were about the same as the third quarter.
Given that, and the continuing pandemic, Coburn said he expects originations this year will be essentially flat.
“While the outlook does look positive for things to begin to return to normal, it will be a slow road back as consumers begin to tentatively travel more and some employers beginning to gradually transition back to an office environment, although it is doubtful that everything will ever return back to exactly as it was prior to the pandemic,” he said.
Nationally, captive lenders gained share last year both for new cars, where they dominate, but also in used as shortages of new cars led many of their customers to buy late-model used cars. Captives have the usual advantage of being able to offer sharply lower rates to borrowers with high credit scores while dealers can get back their margins on the price. Last spring, many were offering zero-percent financing.
SECU has adhered to a different strategy. It eschews risk-based pricing, instead offering a standard rate to all members who qualify for a loan.
“We do recognize that we did have some losses to captives as it is difficult for us to compete with some of the extremely low APRs that have been available for consumers with A and A+ credit scores,” he said. “However, for the largest percentage of our members who fall outside of these tiers, we are still their go-to lender.”
And when those borrowers talk about their new car and loan at work, they’re not going to be embarrassed that someone else there got a better rate.
The credit union also tries to arm its members with a pre-approval process designed to be easy for members to use, and give them more bargaining power at dealership.
With its “Auto Power Program,” members can apply for a loan online or over the phone. If approved, the credit union mails the member a pre-approved check up to a specific dollar amount for the purchase of a new or used vehicle.