Credit unions get a bigger share of auto loans as banks lose momentum | Credit union magazine

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A surge in auto lending in the second quarter gave the US credit unions their biggest slice of the auto loan pie in five years.

Latest data from the National Credit Union Administration showed auto loans increased $58.7 billion, or 15.1%, year over year to $447.6 billion. Used-car loans increased $43.2 billion, or 17.4%, to $291.0 billion, and new-car loans increased $15.5 billion, or 11.0%, to $156.5 billion.

experts State of the automotive financing market The report for the second quarter of 2022 shows that credit unions now have their highest overall share of the auto loan market since 2017, at almost 26%. A year ago, that number was just over 18%.

The secret of their success is offering low interest rates and underpricing the market, said John Toohig, head of all credit trading at Raymond James.

“We’re in this really weird place right now where [credit unions] have a lot of cash on hand and they’ve been lending with it at extremely low interest rates,” Toohig said. “We’re still seeing them making 1%, 2% or 3% auto loans while the rest of the market is at 5.5% or 6.5%.”

For Pathways Financial in Columbus, the average auto loan is up $2,775 year over year, representing an 11.7% increase in average outstanding loans.

And this increase in auto lending could come at the expense of banks. Lending growth for consumers who bought cars and trucks slowed to half the pace of the previous three months for US banks in the second quarter.

Experian said the banks’ market share fell from 30.3% a year ago to 27.9% in 2022. The rest of the market is owned by the auto companies themselves, as well as fintechs.

One of the credit unions that is seeing increasing demand for auto loans is Truliant Federal Credit Union, a $4 billion lender in Winston-Salem, North Carolina. Truliant had $1.1 billion in auto loans at the end of the second quarter, up from about $1 billion at the same time last year, plus an additional $620 million in indirect auto loans.

Chris Murray, Truliant’s chief member experience officer, said demand for auto loans has been strong, particularly through the indirect lending channel, which is through a dealer rather than the lender’s direct channels.

“And we expect it to stay strong,” Murray said. “We use our strength in the indirect area [lending] and to make investments in technology, processes and people to expand our capacity and generate more credit through the channel.”

Most of the new business was used-car loans, and Murray said that funding loans quickly is critical when it comes to independent used-car dealerships.

“They rely on our fast financing, especially in today’s market where they have to compete fiercely to get inventory at auctions. Cash is king for them; the quicker they get finance, the quicker they can put the next car up for sale. ‘ Murray said.

And volume hasn’t slowed, despite Truliant steadily increasing prices.

Other credit unions will soon have to rein in auto lending because in some cases they have near-negative net interest margins on auto loans, Toohig said. “They need to raise their rates first, just to slow lending, but also to check the profitability of the portfolio,” he said.

Curtis Onofri, chief lending officer at Pathways Financial Credit Union, a $592 million lender in Columbus, Ohio, said auto loan growth has been fueled by both new purchases and refinancing.

There are several factors causing the rapid growth in auto lending — including increased prices, strong marketing, lagging rate hikes and better inventories, Onofri said.

“Prices on the new and used markets have risen significantly in recent years. This increase translates into higher average loan amounts,” he said.

For Pathways, the average auto loan is up $2,775 year over year, representing an 11.7% increase in average outstanding loans.

Hanscom Federal Credit Union, a $1.9 billion Massachusetts lender, had $350 million in auto loans at the end of the second quarter, plus an additional $231 million in indirect auto loans.

Dan Picard, Hanscom’s senior vice president of consumer credit and collections, said automakers’ financing departments aren’t offering attractive financing options given the lack of incentives at auto dealerships due to limited inventories.

“As a result, credit union lending opportunities have remained resilient even in this environment of rising interest rates,” he said.

Toohig said these loans also increase credit union membership, but the question is whether the credit unions can then cross-sell these consumers with other products, such as credit cards or mortgages.

Easier said than done, Toohig said. “Historically, that number [of cross-sales] is incredibly low.”

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