Financial news headlines last month trumpeted analyst projections that the Federal Reserve had indeed achieved its goal of managing the economy away from a recession and into a soft landing. The Fed’s September decision to cut interest rates by a half point – the first cut since the pandemic four years ago – was the agency’s long awaited victory lap. By all reports, the economy remains strong, consumer spending is robust, manufacturing is up, and labor continues to gain, although at a slower rate than expected.
Another quarter point reduction, announced November 7, reflects policymakers’ response to slowing inflation and a desire to reduce borrowing costs. The Fed believes it has not finished taming inflation, and a continued series of rate cuts are needed to keep the economy chugging along. Concerns about the labor market and the impact of the election results mean officials will keep their hand on the rudder for several more months.
However, the view from the Fed’s high-rise towers diverges greatly from the average consumer’s front lawn. Grocery prices continue to climb, mortgage rates have ticked back up, and the interest rates for an auto loan remain near decades-high levels at more than 9.61% for a new vehicle and nearly 14% for a used car or truck, according to Cox Automotive. What happened to that soft landing?
While interest rate cuts may boost consumer desire to purchase, it won’t impact new vehicle sales as quickly or by as much as some may expect. As we all know, auto loans are a function of longer-term bond yields that are based on loan performance. Cox Automotive chief economist Jonathan Smoke commented recently that vehicle affordability challenges will not be solved by this new rate path.
As a credit union searching for a soft landing in your auto loan portfolio, how are you steering the rudder? Are you taking innovative steps to capture market share from competing banks? Are you offering unique, value-driven deals to new and existing members? Fortunately, as a credit union, you have the power to make incremental shifts that can have a measurable impact on the bottom line.
Take an innovative mindset to give your customers more personalized loan and F&I options versus what might be available at the dealership. Be competitive on the APR and offer a customized suite of complimentary protection products on new, pre-owned or even refinanced loans. Foster a spirit of innovation among your loan officers, encouraging them to offer new ideas. And listen to those ideas when they make sense!
Innovation doesn’t just exist in terms of products and services. It lives within the culture of the company, its employees, and leaders. I know this firsthand. For the eighth year in a row, EFG Company employees have ranked the company as one of the most innovative business services companies in North Texas, scoring higher than our industry peers. Based on our annual employee survey results administered by Energage, the company that powers the nation’s premier employer recognition program, Top Workplaces, our employees feel respected, know their ideas are encouraged, and believe the company is committed to fostering a collaborative culture that delivers more value and profitable results for its clients. Can your employees say the same?
No doubt, it’s been a challenging, tumultuous year and we’re all looking for a soft landing. With over 50 years of experience, we’re more than an F&I provider, we’re your business partner and can be a valued resource to your credit union. Contact us today to learn more about how our team can help you achieve your auto lending goals.