August 5, 2021

Used cars a bright spot for credit unions

Credit unions ceded market share to automaker lenders wielding aggressive incentives in the spring. But used-vehicle lending remains a bright spot for credit unions amid the coronavirus pandemic as used-car values skyrocket.

All non-captive auto financing companies forfeited market share to automaker lenders boasting 0 percent interest, seven-year car loans in the first and second quarters, J.D. Power and credit bureau Experian noted in reports. Yet credit unions are benefiting from high consumer demand on a dwindling supply of new vehicles.

More shoppers are turning to used vehicles, leading to record-high auction prices as dealers lock horns over limited inventory. Used-vehicle lending, an area in which credit unions long held an advantage, improved this summer for those financial institutions on Credit Union Direct’s lending network.

Used-vehicle loan volume at credit unions connected through CU Direct decreased by about 1.1 percent to 647,782 for the first six months of 2020 compared with figures from a year earlier. Total loan amounts, however, rose 2 percent to $14.37 billion in the same period.

The rise in used-vehicle values compared with last year largely drove the change, according to Bob Child, COO of CU Direct.

New- and used-vehicle auto applications to credit unions through Aug. 23 were down 3.2 percent compared with 2019, better than expected given the marketplace constraints in March and April, Child said. Credit union market share for used-vehicle originations fell to 25.3 percent from 26 percent in the first quarter, according to credit bureau Experian’s latest State of the Automotive Finance Market report.

Residual pandemic conditions will soften credit union market-share rebound this year. Much like their peers, credit unions will continue to be cautious about lending during the outbreak, Child said, with tighter lending requirements and added layers of employment verification.

The future performance of auto loans in payment-deferral status remain a mystery for lenders granting them, and credit unions have compiled reserves similar to other banking institutions. That conservatism likely will present market-share growth opportunities for credit unions to normalize their share against other lending peers.

“Credit unions will likely stay flat to where we were at before, or we will lose a little bit more market share between now and the end of the year,” Child said. “It also depends on what happens with the automakers’ 0 percent financing. I don’t think that they will bring it back, considering the inventory constraints.”