CUNA | Lending Curve

Financial institutions reporting their mid-year results revealed some areas of promise for a positive year, as well as some areas for improvement. Auto loan originations and balances were up at several banks, reflecting a rise in car purchases post-pandemic shutdown. Ally, Chase and Wells Fargo originated $58.1 billion in auto loans in the second quarter, up 23.1% from 2020’s second quarter and up 8.3% from the first quarter. Auto balances at Bank of America, Chase and Wells Fargo were $165.8 billion as of June 30, up 5.2% from a year earlier and 1.7% from March 31.

Among credit unions, CUNA estimated that total car loans stood at $392.8 billion on May 30, up 3.9% from a year earlier and up 1.4% from March 31. While this level of performance is likely on the high end, it does indicate strength in the auto finance market.

Plan for the best, prepare for the worst

The positive gains experienced by credit unions in the auto loan space may well continue through the remainder of the year, as the economy continues to expand and people return to work. Consumer balance sheets remain healthy due to increased savings, low interest rates and government stimulus money, increasing their ability to borrow and pay for a vehicle. But prices for both new and used vehicles have risen exponentially and inventories remain tight. Outbreaks in COVID-19 coupled with the decline in consumer sentiment could prove a mixed bag for credit unions.

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.