Auto Loans Slip at Credit Unions

An Experian report released Thursday showed credit unions this spring continued a three-year pattern of producing a smaller share of auto loans.

Experian’s “State of the Automotive Finance Market“ report for the second quarter showed credit unions generated 18.2% of auto loans in the three months ending June 30, up from 17.2% in the first quarter and down from 18.8% a year earlier.

In second-quarter measures, the credit union peak was 22.7% in 2018, falling to 19.8% in 2019.

Meanwhile, banks and captive lenders increased their share. Banks originated 30.9% of loans in the second quarter, up from 29% in the first quarter and up from 28.8% a year earlier.

Captives’ second-quarter share was 29.7%, up from 28% in the first quarter and 29.3% a year earlier.

Melinda Zabritski, Experian’s senior director of automotive financial solutions, said many of shifts reflect a return to more normal conditions since the months after COVID-19 was declared a pandemic in March 2020.

“In 2020, we saw manufacturers offering incentives to keep people coming to showrooms, and as a result, captive lenders saw significant growth in 2020,” she said. “That’s slowing down in 2021, and giving other lenders, such as banks and credit unions, the opportunity to increase market share. We may see this trend continue as things continue to level out for the remainder of 2021.”

The trend was reflected in data earlier this month from the Fed’s G-19 Consumer Credit Report and CUNA which showed credit unions’ share based on the value of loans outstanding was 30.6% in June, down from 31.7% in June 2020 and 31.1% in March. It peaked at 32.6% in December 2018.

Credit unions maintain a higher percentage of loans in their portfolios, while other lenders sell more of them to the secondary market.

Delinquencies were low for credit unions and other lenders. Among the 10 largest credit unions by assets, loans that were 60 days or more delinquent represented 0.37% of balances at June 30, down from 0.58% a year earlier and 0.69% two years earlier.

Among all lenders, Experian found 60-day delinquency rates at 0.36% June 30, down from 0.39% one year ago and 0.59% two years ago.

Experian also found prices and payments are up sharply compared with two years earlier before the COVID-19 pandemic.

Experian found borrowers financed an average of $35,163 on new cars in the second quarter, down 2.7% from a year earlier an up 8.7% from two years earlier. Monthly payments on new cars were $575 in the second quarter, up from $570 a year earlier and $555 two years earlier.

The average used car loan was $23,365 in the second quarter, up 9.4% from a year earlier and up 14.8% from two years earlier. Monthly payments on used cars were $430 in the second quarter, up from $397 a year earlier and $390 two years earlier.

Interest rates are lower than they were two years ago, but buyers are spending more in part because of their increasing preference for large, expensive CUVs, SUVs and trucks.

Cox Automotive on Wednesday reported that the supply of unsold used vehicles on dealer lots across the U.S. grew to 2.44 million vehicles at the end of July, compared with 2.40 million the month earlier. Used vehicle inventory improved from late July 2020 by 12% but was still down 14% from July 2019.

Charlie Chesbrough, Cox Automotive senior economist, said prices are higher because of a scarcity of new vehicles caused by shortages of microchips, which in turn has increased demand for used cars.

“For consumers, finding a used vehicle at an attractive price represents a huge challenge in today’s market,” Chesbrough said. “Sales have been slowly falling in recent months due to limited availability and high prices, but not enough to chase off prospective buyers. The situation is unlikely to improve significantly until the supply issues in the new market start to improve.”