CUNA Mutual Group recently reported that U.S. credit unions experienced a $14.3 billion increase in auto loans during 2012, which equates to an 8.5% gain.
This statistic represents the highest increase since 2005, which begs the question what are credit unions doing differently than other auto lenders?
Carrie O’Connor, senior vice president of lending at CommunityAmerica Credit Union ($1.8 billion, Kansas City, KS) says that growth at her credit union is due to a combination of several factors including the low rate environment. “We saw a significant surge in auto loan growth last year. In fact, 2012 was our best year ever in terms of direct auto loan production.
We believe our relationship pricing promotion, through which we reward members who do more business with us with a lower interest rate based on our cooperative business model, as well as pent-up demand stemming back from the recession also contributed to our overall auto loan growth.”
Indirect lending seems to also be hot at many U.S. credit unions. “San Francisco Federal Credit Union is fortunate to share in the current auto loan growth trend,” explains Kymberli Roberts, centralized lending manager at San Francisco Federal Credit Union ($828.8 million, San Francisco, CA). “In fact, year over year we have reported an increase in auto loan volume, currently realizing our greatest growth in the new and used indirect auto loan categories.”
Roberts says that the growth can be contributed to several factors, which include (but are not limited to) an on-going low rate pre-select auto loan offer, an increased focus on improving internal systems by utilizing the latest technology and available data and an increased focus on the pre-approved auto loan follow-up processes. “Our successes haven't come without everyone's accumulative efforts and hard work, which we will undoubtedly continue to build upon throughout 2013,” she adds.
Can Credit Unions Sustain Growth?
According to CUNA Mutual Trends Report author Dave Colby, credit unions should have no problem securing more auto loans well into the future. “We assume new vehicle sales will remain strong enough (above the 15 million unit annual rate), manufacturers will continue to ease off on subsidized financing incentives and credit unions will remain very competitive on rates,” he writes in the February report. “The December 2012 national average credit union new vehicle loan rate estimate is 3.44%, down 56 basis points since December 2011.”
Richard Reese, president of Kentucky Telco Federal Credit Union ($302 million, Louisville, KY) believes that early economic indicators are driving more people to make a decision to purchase a vehicle. “After sitting on the sidelines for four or five years, there are people who need to make a purchase of a car,” he told Business First. “But also, people are feeling like the economy is showing early signs of (growth).”
Kentucky Telco’s net auto loan portfolio grew by nearly 20% in 2012, which the credit union considers to be a year-over-year growth. Reese says that thus far 2013 auto loan activity has been "significantly higher than it would be in any winter in recent memory."
Reese adds that the credit union has made auto loans its primary focus and has also developed special outreach efforts to further its efforts. These efforts include creating some successful member outreach programs and developing a strong relationship with some area dealers. Combining those aspects with a well-trained staff and great rates has resulted in strong loan growth.
Can the Sequester Rain on the Auto Buying Parade?
As the economy finally started the turn around, news of a government shut down and severe cuts are threatening to destroy progress Americans have worked so hard to achieve.
However, auto makers aren’t cashing in their chips just yet. Big manufacturers like General Motors and Ford Motor Company believe that continued low rates, pent up demand and rising home prices will keep growth on track.
Ford Motor Company economist, Ellen Hughes-Cromwick told The Wall Street Journal that numerous factors will influence the auto buying landscape.
“If sequestration is fully implemented and that is still an if, because if we have several hours on the clock here today, by our estimate, represents about a half a point on GDP growth,” she said. “That is assuming all of these things are sort of static. We’re seeing housing really kick in a little bit more capital goods orders up and I think that it is encouraging to see that consumers may have a little bit of nerves of steel in light of the sequestration. So I think that there is some regional impacts that may be a little bit bigger, especially in Virginia and Maryland, but we’re estimating about a half a point all in.”
Kurt McNeil, vice president of US sales operations for General Motors told The Wall Street Journal that Americans have simply become apathetic toward Washington politics. “Is all the short-term conversation and Washington having a negative impact on consumer confidence? Yes maybe to some degree but quite frankly we think most of America is getting a little tired of hearing about some of the dysfunction.”
Are you going to let the sequester influence your decision to purchase a vehicle or have you found a credit union that can put you in your dream wheels now?