Competitive Rates Lead to Significant Auto Market Share Growth for CUs

In recent years, we have witnessed the value of new and used vehicles increase. Now with interest rates rising and fewer incentives being offered, it’s become a challenge for consumers to find budget-friendly options in the market.

Experian’s “State of the Automotive Finance Market Report: Q4 2022” found that one in four new vehicle loans were financed through credit unions this quarter due to lower interest rate offerings, resulting in substantial market share growth in new vehicle financing for the lenders.

While credit unions have historically focused on the used vehicle space, data shows they’ve become more competitive in the new vehicle space. In Q4 2022, credit unions offered a 5.49% interest rate for new vehicles, up from 3.61% in Q4 2021, coming in right behind captives at 5.45% and considerably lower than banks at 7% this quarter.

The lower interest rates for new vehicles subsequently led to credit unions witnessing their largest growth in market share for new vehicle financing. While captives had the largest market share at 48.38% in Q4 2022, fewer incentives caused the drop from 51.64% in Q4 2021. Credit unions made up much of the difference, jumping from 13.73% to 20.32% year-over-year – trailing just behind banks, which decreased to 23.71% this quarter from 29.74% the previous year.

Credit Unions Offer Lowest Used Vehicle Rate

In addition to credit unions growing in new vehicle financing, it’s noteworthy that they continued to offer the lowest average interest rate for used vehicle lenders. In Q4 2022, credit unions offered an interest rate of 7.03% for used vehicles, substantially lower than captives (9.25%) and banks (9.34%). All lenders increased their rates year-over-year, with credit unions offering an average of 5.08% this time last year, captives coming in at 7.11% and banks at 6.47% in Q4 2021.

As a result of their low rates, credit unions took the lead in used vehicle market share this quarter. In fact, credit unions witnessed the largest increase, going from 26.03% in Q4 2021 to 31.19% in Q4 2022 –while captives remained steady with a slight uptick from 8.01% to 8.45% year-over-year, and banks dropping from 33.91% last year to 27.21% this quarter.

With credit unions gaining market share in both new and used financing, they now hold the largest overall market share. In Q4 2022, credit unions comprised 26.85% of all vehicle financing, from 21.36% in Q4 2021 – passing both captives and banks. Captives accounted for 24.40% of the overall market share this quarter, from 24.59% last year, and banks declined from 32.33% to 25.81% year-over-year.

New & Used Vehicle Financing Trends

Looking at what vehicles were financed in the fourth quarter of 2022, data shows used vehicles continued to account for the majority of originations. Though, with new vehicle inventory becoming available, fewer dealer incentives and high used vehicle interest rates, consumers have shifted back into the new vehicle space.

In Q4 2022, new vehicles made up 39.53% of financing, up from 37.62% in Q4 2021 and used vehicles made up the remaining 60.47%, a drop from 62.38% the previous year.

It’s important to note the average loan amount for a new vehicle was still considerably higher this quarter. For instance, the average new vehicle loan amount was $41,445 in Q4 2022, leading to an average monthly payment of $716. On the used side, the average loan amount was $27,768 this quarter, with an average monthly payment of $526.

Despite more than half of consumers continuing to opt for used vehicles, the increase in new vehicle financing is a trend credit unions should keep in mind as they continue to pave way into the new vehicle finance market.

Prime Consumers Account for Majority of Financing

Breaking down who is currently in the market to finance a vehicle, data shows prime borrowers accounted for the majority of financing. In Q4 2022, prime and super prime consumers with a credit score between 661 and 850 comprised 66.5% of all vehicle financing, an increase from 64.98% the previous year, while subprime consumers with a credit score between 300 and 600 made up the remaining 15.57%, a decrease from 16.38% in Q4 2021.

The decline in subprime borrowers may indicate that some consumers have not returned to the market while others are keenly managing their credit and moving into the prime space, something credit unions should analyze as they look for ways to ensure the right audience is reached.

Having a comprehensive understanding of current consumer financing trends will be important for credit unions in order to maintain market share and help consumers connect with financing options that fit their budget.

Melinda Zabritski is the Senior Director of Automotive Financial Solutions for Experian.