Business Growth Compliance Economy

Will New Rules Hamper Growth?

Credit unions have notched the highest percentage of auto loan originations since 2007. Leveraging consumer inflationary concerns and lower interest rates, Experian’s “State of the Automotive Finance Market” report for the second quarter released Aug. 25 showed credit unions produced 25.8 percent of the loans and leases from lenders in the three months ending June 30, up from 18.3 percent a year earlier and 22.1 percent in this year’s first quarter. Pop the corks and let the confetti fly!

Inflation concerns are likely to remain for the rest of 2022. The Federal Reserve signaled earlier this month that it plans to continue its aggressive approach to raising interest rates, with a target of 4.0 percent. However, declining gas prices across the country prompted a notable increase in the Consumer Confidence Index for August. Purchasing intent and vacation intent also increased, indicating that monetary concerns have not made a noticeable impact on consumer behavior.

In fact, consumers have made overall improvements in their financial health since the pandemic. Experian’s Melinda Zabritski, Senior Director of Automotive Financial Solutions, has seen continued improvement in consumer credit scores over the last several years with a greater percentage falling in the prime category.

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There’s Still Opportunity for Gains

The latest report from Experian on the State of Auto Finance Q2 2021 revealed that banks and captives continued to gain auto loan market share while credit unions continued a 3-year trend of losing market share. Combined, banks and captives account for approximately 60 percent of the overall share, while credit unions slipped to 18.21 percent. The health of a consumer’s financial stability is clearly on display as loans ranked prime+ were nearly 62 percent of total loans while total subprime dropped below 20 percent and deep subprime hit record lows.

According to Experian, subprime financing will remain at near-record lows while prime will increase across all transaction types for the remainder of the year. Loan amounts and payments will remain at near-record highs and will likely hit record-highs for used vehicles. Overall outstanding balances will increase, and 60-day delinquencies will decrease.

Opportunity for credit unions

Surprisingly, the U.S. consumer actually became financially stronger during the pandemic, boosting personal savings by nearly 2X of disposable income. This strong balance sheet enables credit unions to focus on maximizing their customer engagement time, with discussions of supporting and maintaining that wealth.


Economic Indicators Aid Forecasting

As we move through the second half of 2021, there are some economic indicators which should be considered when developing strategies for an auto lending portfolio in 2022.

According to Bankrate data as of June 30, 2021, the U.S. average rate for a 60-month new auto loan started the year at 4.24 percent and has dropped to 4.18 percent.  Similarly, rates on a 36-month used vehicle loan began at 4.53 percent and declined to 4.49 percent. The Federal Reserve has also signaled that it intends to keep interest rates low for the remainder of 2021 – and possibly into 2022.

Unemployment and growing debt are also important economic indicators to watch. According to Experian, the average annual percentage rates (APRs) on used and new car loans were 21.07 percent and 14.66 percent, respectively, for individuals with credit scores between 300 and 500. That compares with used and new car loan APRs of 3.71 percent and 2.41 percent, respectively, for those with top-tier scores between 781 and 850.