Business Growth

Choices Matter

Everyone likes choices, and consumers looking to secure financing for a vehicle are no different. When shopping for the best auto loan, they look at rates, but that’s not all. They’re also looking for value-added options to provide greater security in their decision, especially in today’s turbulent economic times.

So, how are credit unions faring?

According to S&P Global Intelligence, U.S. credit unions grew their auto loan portfolios by more than $6 billion in the fourth quarter of 2021, reporting a total balance of $408.21 billion at the end of the period. Breaking that down, new auto loans at credit unions amounted to $143.20 billion at year-end 2021, up from $142.86 billion at the end of the previous quarter. Used car loans increased 2.2 percent quarter-over-quarter and 10.2 percent year-over-year to $265.01 billion.

Auto loan trends callout


The Fed’s Impact on Auto Lending

2022 has kicked off with some very mixed signals. While corporate earnings and retail auto sales closed out the 2021 fiscal year with strong numbers, the stock market has been on a roller coaster ride, and labor and supply chain issues continue to stifle growth. Adding to the confounding picture is the rate of inflation. At its current rate – 7.04 percent – most economists and investors do not expect inflation to return to anything like the double-digit levels that prevailed in the early 1980s. However, the rate of inflation and the contributing indices will still have an impact on auto lending in 2022.

Let’s look a little deeper into the details. The U.S. economy grew 1.7 percent in the fourth quarter, a 6.9 percent annual rate and its largest one-year jump since 1984. While impressive, the expansion reflects the depth of the damage inflicted by the pandemic in 2020/2021.

From a consumer standpoint, the rate of inflation is reflected in both the consumer price index and the personal consumption expenditure index — each climbed to a 39-year high last year. The cost of goods and consumers’ consumption of those goods has a direct correlation with inflation and purchasing power. To put it simply, you would have to spend 7.04 percent more money in 2022 than in 2021 for the same item.

Business Growth

Mid-Year Auto Lending Review Shows Promise and Opportunity

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.