Credit unions continued to demonstrate resilience in navigating some of the challenges of the last quarter: income declined from the third quarter; provisions and actual charge-offs rose, but auto lending still weakened. Providing a snapshot of the overall industry, the nation’s Top 10 credit unions in the U.S. suffered a drop in ROA and higher-than-expected credit losses. While the Top 10 bolstered their provisions for the quarter, and charge-offs were smaller, delinquency rates rose, reflecting some potential cracks in the overall health of the economy.
Loan originations improved for residential real estate and commercial lending but fell sharply for consumer loans, which include credit cards and personal loans. The biggest red flag in the category was auto loans, which have had waning balances. Auto loan balances rose a bare 0.7% over 12 months to reach $71.7 billion at the end of 2024. Only Navy Federal (+9.8%) and Mountain America (+1.5%) showed gains.
The latest Experian Q3 2024 State of the Automotive Finance Market report reflected the year-long trend stating that credit unions lost their lead in used car lending in the first quarter to banks, and credit unions’ share of new car financing also dwindled, falling farther behind banks and captive lenders. On average, penetration for credit unions for auto lending has dropped to nearly 15 percent.
But rather than taking a passive, turn-the-other-cheek approach, I’d like to propose a more assertive back-to-basics tactic for 2025. We are just at the beginning of what could be another tumultuous year. Member-focused credit unions can profitably increase their auto lending portfolio while strengthening customer engagement.
Members – and consumers in general – who are risk averse are perfect auto loan candidates for credit unions. Flexibility to offer attractive interest rates can mean the difference between a vehicle purchase versus a wait-and-see response. In addition, pre-approved loans provide an affordability framework, giving the consumer confidence to make the purchase.
Risk-averse buyers also may have concerns about their employment future, or the economy in general. Debt protection products such as WALKAWAY can ease buyers’ concerns about an unexpected life event impacting their credit. These protection products also offer shelter for credit unions against charge-offs and can guard against delinquency.
Don’t take declining revenue on the chin. Proactively train your auto lending team to reach out and engage members who may be in the market for a vehicle. Coach loan officers to explain the value of a credit union loan that offers an attractive interest rate and protection from involuntary job loss. Encourage your staff to understand the true needs of each member and work to build a deal that works for both parties.
At EFG Companies, we’re more than an F&I provider, we’re your business partner in auto lending. Together, let’s make more in 2025.