Business Growth

The Early Bird Tactic to Growing Your Auto Loan Volume

According to the FDIC, cash is readily at hand as a record $2 trillion in cash hit the deposit accounts of U.S. banks since the beginning of the pandemic. With interest rates near zero, net interest margins have narrowed. Financial institutions would love to issue loans, but there are few opportunities to grow right now. Auto loans are a frequent go-to solution, but the pandemic has added a few wrinkles to that tried-and-true tactic.

Used car values typically decline during a recession, raising concerns about negative net equity on typically long-term 84-month loans. But analysis from Edmunds reflects there could be more demand for used vehicles versus new, as the cost of new units continue to rise and manufacturers continue to fall behind on production schedules.  

How can a credit union capitalize on the opportunity to grow their auto loan portfolio? The first step is to reach the car shopper early in their search. By the time a consumer visits a dealership, they are likely to have conducted an average of 13-14 hours of research. Offer proactive, pre-approved loans to members along with assistance in selecting the best deal for their credit position. Partner with members in their buying journey rather than waiting for them to come to you.

Business Growth

Member-First Thinking Secures More Loans

How would you describe these first few months of 2021? According to CUNA’s Monthly Credit Union Estimates, credit union loan growth continued to slow in January, including further erosion in new car lending. Total car loans nearly flattened at $381.7 billion, just 0.2 percent greater than a year earlier. New auto loans fell 5.8 percent to $140.3 billion, while used auto loans rose 4.1 percent to $241.4 billion. Though captives have gained shares in used cars, both banks and credit unions have been losing shares to captive lenders in the new car loan market.

However, there are positive signals on the horizon that bode well for auto lenders. Vaccine distribution is rolling out and COVID-19 cases are trending down across much of the country. A third stimulus package will deliver checks to millions of low-to-middle income Americans and income tax refunds should start rolling out in coming months.  With consumer confidence trending upward and unemployment numbers dropping, pent-up consumer demand for vehicles could drive customers to the dealership. However, much has changed for many consumers and their credit position. Auto lenders – especially credit unions – have an opportunity to boost their loan portfolio if they stick to one tried-and-true tactic. Always: put the member first.

Business Growth Economy

Putting Customers First to Increase Revenue

We are nearing the first full month with the new Administration and there has been a lot of activity from the White House. Vaccine distribution is rolling out, COVID-19 cases are trending down across much of the country, and Congress has a stimulus package to address. All of these actions bode well for the retail automotive industry. However, auto lenders have several other factors to consider going forward. The average interest rate on a five-year new car loan declined by 38 basis points, and the average four-year used car rate dropped 45 basis points during 2020 according to Bankrate.

Bankrate also predicts that new and used car interest rates will continue their downward trend.  With shrinking interest rates and reduced volume, what steps can your institution take to bolster its auto loan portfolios, especially when competing on a low interest rate is no longer enough to motivate potential buyers to choose your auto loan?

One option is actively promoting auto loan refinance options. Simply helping consumers save a dollar can increase your auto loan income exponentially in this hyper-competitive lending market.