Predicting one more great year before car loans taper off in 2017. By John Caddell and Carol Cline-Parton This is bonus coverage from “Lending Outlook 2016” from the January 2016 issue of Credit Union Management magazine.
A rising tide lifts all ships and the improving economy has certainly lifted the U.S. auto industry out of the lows of the Great Recession. As reported by Reuters on Aug. 4, 2015, the National Automobile Dealer Association projects 2015 auto sales to reach 17.17 million vehicles, a 4.4 percent increase from 2014. Steven Szakaly, an NADA economist cited in the story, predicts that U.S. sales will peak at a record high in 2016 of 17.46 million vehicles and then slide back to 16.65 million vehicles in 2017. Healthy auto sales translate into good times for those in the lending business, according to CU Direct. During an Oct. 8, 2015, webcast for its lending partners--“State of the Credit Union Auto Lending Market”--CU Direct underscored that auto loans have hit the $1 trillion mark in outstanding balances for the first time in the U.S. history. CU Direct also reported that credit unions captured 25 percent of all U.S. auto loan originations in second quarter 2015 and 19.6 percent in June of 2015, up from 18.8 percent at the same time last year. Riding the wave, CU Direct partner credit unions experienced 16.7 percent in loan growth through mid-year. So, how long will this robust auto lending market last? As long as employment continues to improve, interest rates stay relatively low and gasoline prices remain at their current level. Although the Fed decided not to increase rates after its September 2015 meeting, some observers believe this “no change” policy will change before the end of the year. A Fed decision to raise rates would most certainly affect the purchase of higher priced goods (autos, RVs, motorcycles, etc.). Since many of these more expensive products are traditionally bought on credit, it will cost consumers more to finance them. Consequently, while increased rates may reduce the number of collateralized loans transacted by credit unions, the rate of return would be higher with greater margins. However, at this point, this is all educated guessing at best and we simply will not know how higher rates will affect the marketplace since it depends on how much rates go up. We do know that whatever happens, people will always need vehicles, new or used. Auto loans have been the fastest growing segment in credit unions’ lending portfolios fueled by indirect lending, which, according to CU Direct, has more than doubled since 2005. Credit unions that have been able to benefit from the current loan environment with aggressive promotions, attractive rates, and financial and service relationships are well positioned to continue to profit from the lending activity into next year and possibly beyond. And there’s no time like now to prepare for 2016. Establish relationships with dealers to accommodate more indirect lending, provide 24/7 call center service to capture off-hour loans and offer creative programs. Finally, do everything in your power to ensure that when one of your members is in the market to purchase a vehicle, that loan comes to you first and not to one of your competitors. John Caddell is credit and lending services manager, and Carol Cline-Parton is vice president for CO-OP Member Center, a wholly-owned subsidiary of CO-OP Financial Services, Fort Worth, Texas, 888.869.5522. You may be interested in attending the CUES School of Consumer Lending and the CUES Advanced School of Consumer Lending. They will be held July 18-19 and July 20-21, respectively, in Seattle.
