Tag: Federal Reserve

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Business Growth

2023 – Managing the Tipping Point

Credit unions have an extra reason to celebrate over the holiday and new year season. According to the third quarter State of Automotive Finance Market Report from Experian, credit unions now account for the majority of the auto loan market share. Whether they keep these gains in 2023 is yet to be seen. While Federal Reserve prime rate increases do not directly translate to increases in auto loan rates, there are some notable ripple effects that auto lenders are watching. Fluctuations in new and used car prices, higher down payments, longer loan terms, increased defaults, and loan-to-value ratios will all factor into the mix next year. We look forward to collaborating with our credit union lending partners and keeping the scales on an even keel.

GAP for some

Keeping a close eye on the loan-to-value ratio on every deal will be key for lenders in 2023. We encourage our lending partners to offer GAP on those deals with lower down payments and a higher risk of default if the vehicle is deemed undriveable and insurance coverage does not cover the replacement value. For some customers, having GAP coverage in addition to a vehicle service contract can mean the difference between a major tip of the scale or a manageable event.

Reaching the limit

Higher monthly payments and longer payment terms are becoming more common place as the price of both new and used vehicles continue to rise. While some buyers might focus only on the short term, auto lenders who look across their total portfolio might see signs of caution. Even credit union members who are considered prime can run into difficulty in uncertain economic times. Debt protection products such as WALKAWAY® can provide some counterweights to keep the scale in balance and protect positive revenue in 2023.

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Categories
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

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Economy

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.

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