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Business Growth

How’s Your Online Platform?

Did you feel a bit of a shift in auto lending recently? Two data points have emerged that have the potential to change the landscape of auto financing for credit unions. First, the Experian Q4 2022 Auto Finance Market Report revealed that credit unions now capture nearly 25 percent of new loans and experienced the highest growth within the auto lending market at the end of last year. Melinda Zabritski, Experian’s senior director of automotive financing and author of the report also stated that larger vehicles like SUVs comprised more than 60 percent of new vehicle financing, with no signs of slowing down, prompting average monthly payments continue to reach new highs.

The second data point involves how those consumers are purchasing their vehicles. McKinsey recently issued a report entitled Disruption and Innovation in US Auto Financing highlighting that auto financing is no longer a separate silo in the car buying process. Researching, buying, financing and delivery are now one experience.  It must be easy on the customer and it’s likely highly reliant on digital.

These two data points should prompt you to take a close look at your credit union’s online platform. Maybe it’s time to implement a “mystery shop” on your website’s auto lending experience. Go through the process of researching an auto loan, estimating payment, submitting an application, and reaching out to your team through the website. If you have a chat feature, try it out for yourself and check your customer relationship management (CRM) tool to see what actually happens with that inquiry. Taking an unbiased view of the member’s experience can give you actionable insights that turn into revenue.

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Business Growth

The Impact of EVs on Auto Lending

Things are looking pretty rosy for credit unions in the auto lending space. According to the Experian Q4 2022 Auto Finance Market Report, credit unions now capture nearly 25 percent of new loans and experienced the highest growth within the auto lending market. Payments and loan amounts also increased year-over-year in 2022, adding more revenue to credit unions auto loan portfolios. Credit unions remain the best option for many consumers with rates at 5.5 percent versus banks, financing companies and other types of lenders.

In the used car space, credit unions have pulled ahead to become the number one option for financing with greater than 30 percent market share. Terms and rates increased across all types of credit segments while loan amounts and payments also increased. As with new loans, credit unions also offered the lowest rates at roughly 7 percent versus other financing options. But amid all the good news, 60-day delinquencies ticked up to above pre-COVID levels for the first time since 2018. For some segments of the economy, money woes are growing.

Opportunities in EVs on the horizon

 While sales of U.S. passenger vehicles fell in 2022, the number of electric vehicles (EVs) sold rose by a remarkable 65 percent, an increase of almost two thirds compared to 2021. EVs accounted for 5.8 percent of all new cars sold in the US, an increase from 3.1 percent the year prior. Industry projections expect the number of electric vehicles sold in the US will surpass the 1-million mark in 2023. This growth will be driven by OEMs increasing inventory, improved charging infrastructure, and affordability. The average price of an EV sold in the US last year was $61,448, a 5.5 percent decrease compared to 2021.

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Business Growth

Hedging a Seven-Year Auto Lending Bet

According to credit bureau Experian, 19 percent of new-vehicle debt and 11 percent of used-vehicle loan terms were 84 months in 3Q 2022. By comparison, Experian data revealed that only 11 percent of new-vehicle borrowers and 4.1 percent of used-vehicle borrowers in 3Q 2018 were on the hook for an 84-month auto loan. That’s seven years of debt on a vehicle that begins to depreciate the minute it’s driven off the lot. Outside of lending terms, how is your credit union hedging its bets in the automotive lending space?

Rising vehicle costs, rising inflationary interest rates and continued concerns about the economy have prompted buyers toward lower monthly payments and longer-term loans. Lenders are also willing to offer pre-approved rates at upwards of 96-months on the strength of interest-derived revenue and low delinquency rates. But, how long can that last?

The state of auto lending is not a one-dimensional picture. Let’s look at some details to get a better view of the rewards – and risks – of long-term auto loans.

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