Have you paid attention to the used-car market this year? Previously viewed as less desirable by some lenders, used cars are gaining some cachet. Unfortunately, credit unions appear to be missing the boat. According to the recently issued Experian State of the Automotive Finance Market Report for the second quarter of 2020, market share for credit unions in used car financing has declined precipitously since the same time last year. Experian’s report posted a 3.9 percent market share decline to 24.9 percent.
Why the decline? Several factors are likely at play. The market for used cars has grown exponentially. In June, franchised car dealers sold 1.2 million used cars and trucks, according to Edmunds, up 22 percent from 2019. It was the highest monthly total since at least 2007. Credit unions have lower market share with franchised dealers and so are missing the bulk of this sales volume.
New unit inventory issues are also creating a perceived demand for older cars, fed by a roughly two-month halt in production of new cars earlier in 2020. In the first seven months of the year, automakers produced 6.6 million cars and light trucks in North America – three million fewer than in 2019, according to Automotive News. Additionally, consumers are keeping their vehicles for up to 12 years and receiving a tidy sum if they choose to sell, slowing the revolving door of used car inventory.
Finding the used car loan gems
With credit unions continuing to see declining membership and a slow slide on return for average assets, solid used auto loans from a group of new customers could be just the ticket to find some treasure in the second half of 2020.
But how do you grow your used auto loan market share without taking on too much risk? It’s time to think outside of the box and consider how strategic consumer protection products can help differentiate your credit union and protect your auto loan portfolio from risk.
Complimentary products such as a Vehicle Service Contract (VSC) or Vehicle Return Protection help alleviate some of those consumer concerns about purchasing a pre-owned vehicle. With VSCs, consumers saddled with a $1,000 repair bill only pay a small deductible without damaging their monthly budget, enabling them to keep their vehicle on the road and make their monthly auto loan payment. Vehicle Return Protection enables them to return their vehicle without damaging their credit if unforeseen circumstances arise causing them to lose their source of employment.
Structuring these products into your loans can help you re-evaluate your lending and risk criteria, making it possible to safely expand your market share within the used-vehicle consumer demographic.
With more than 40 years of experience, EFG Companies knows how to position your credit union for long-term market share and revenue growth. Contact us today to put our in-depth knowledge to work for you.