There is no question that auto dealers have embraced relationships with credit unions more than ever before. Both benefit considerably — and will have the opportunity to do so even more in the year ahead.
Dealers and credit unions both thrive on customer loyalty and community orientation, rich assets that appeal to consumers looking to spend and finance tens of thousands of dollars for a new or used vehicle.
Dealers are leveraging credit union-centric technology, including online car shopping sites and indirect lending platforms, to effectively market to, engage with, and help credit union members purchase their next car. These technologies deliver a convenient, fast, and transparent car-shopping experience to today’s fast-paced consumers — and considerable credit union financing advantages that delight today’s consumers, whether credit union members or not.
Let’s discuss three reasons a credit union partnership is a smart move in the current market.
1. CUs Are Dominant.
Credit union consultancy Callahan & Associates noted recently that, as of Q3 2018, one in five auto loans nationwide originated through a credit union. Specifically, credit union used-car market share was 26.6% and new-car share was 20.1%, according to Callahan & Associates and AutoCount.
Used car auto loans make up 70% of credit union auto loan portfolios, which we believe will accelerate through 2019. In 2018, credit unions on the CUDL indirect lending platform, used by 13,000 participating auto retailers’ F&I offices, had funded 1,045,840 loans. Collectively, the 1,100 credit union partners on the CUDL lending platform experienced 8.1% growth in 2018 and remain the largest lender in the automotive marketplace.
Credit unions continue to lead finance companies and captives for used vehicle financing, with 28.4% of the market in the third quarter of 2018, while banks maintained a 36.1% share, according to Experian Automotive.
Evidence of credit unions’ strength in the used-car financing marketplace demonstrates their ability to help dealers grow their bottom lines, providing a key financing option. Further, they can equip auto retailers with the right tools and support to help them connect to and serve credit union members interested in vehicle financing.
Dealers who might otherwise have lost used-car business due to financing issues with other lenders have instead been able to capture these customers by using credit union financing. Furthermore, the latest credit union technology makes it possible for non-credit union members to become members at their local dealership so they might benefit from credit union rates.
Lower rates can allow consumers to move into the vehicle of first choice and to purchase more aftermarket products. Dealers using CUDL tell us credit union lending increases their aftermarket product penetration per customer.
2. CUs Are Ideal for Prime-Credit Used-Vehicle Customers.
As we survey the months ahead, we realize that the strong annual SAAR of recent years is most likely to decline in 2019 from 17 million units to a still market-strong 16.8 million new cars, according to the National Automobile Dealers Association. Outgoing NADA Chairman Wes Lutz noted that, while 2019 will “be a robust year [for new-car sales], he is “concerned about ‘price creep’ that could take some consumers out of the market.”
This “price creep” has been happening for some time; multiple sources say average new-car prices now run about $35,000. Experian puts the average American’s monthly new-car payment at $530, an all-time high, outpacing the average used-car payment of $381 as of the third quarter of 2018.
“The gap between the price of a new and used vehicle is as wide as it has been in years, pushing an increasing number of consumers into the used-car lot,” noted the Wall Street Journal’s Adrienne Roberts in September. In January, Auto Remarketing estimated that 39.5 million consumers will purchase a used vehicle in 2019.
Therefore, we are seeing market pressure driven by the higher cost of new cars, plus higher interest rates affecting monthly payments. The Federal Reserve of New York raised its prime rate from 2.25% to 2.5% in December; it was expected to increase them again in early 2019 but put those plans on hold.
Still, rates are higher than many consumers have experienced in many years. Potential concern for the political climate may be dampening some buyer enthusiasm slightly, but authors of a February Gallup poll noted that “Today, 57% of Americans rate the economy as excellent or good, the highest since January 2001.”
Because of these factors, we also see average buying scores rising. Dealers are seeing more consumers looking now at used vehicles just to manage their monthly payment.
3. CUs Help Dealers Keep Up With Changing Habits.
Millennials are taking over as the dominant buying group, driving the adoption of online tools such as payment calculators, guaranteed trade values, and financing preapprovals, as well as moving parts of the financing transaction online.
Credit unions can help dealers capture buyer affinity across multiple channels and earlier in their shopping journey. Deloitte’s latest Insights magazine addressed this up-funnel strategy; though they limited their discussion to manufacturer/dealer relations, the point is relevant here: “Our experience suggests ... parties could think more collectively about digital transformation, particularly in the ‘upper-to-mid-funnel’ where consumers are still researching a potential purchase online.”
One recommendation for improving online transaction success, the Deloitte article noted, is to leverage such digital convenience services as online financing preapprovals and provide online protection product explanations, both designed “to increase transparency and accelerate the car-buying transaction … and reduce friction in the vehicle purchasing process.”
In her November 2018 article, “Auto Lending: Speed, Ease, and Digital, Please,” CUNA Mutual Group consultant Shawna Rogers noted succinctly: “The biggest influence on auto lending may not be rates and terms, but rather the growing importance of ease and speed. As more consumers conduct research online, vehicle financing is responding accordingly. Historically, most lenders digitized only part of the loan process. But we’re now seeing a rapid advance toward a more complete digital end-to-end lending platform.”
To provide consumers with the experience they want and expect, dealers more than ever recognize that credit unions are adopting and integrating technology that provides a complete end-to-end loan process.
All dealers, regardless of the market, want to work with consistent lenders. Credit unions have remained consistent in their lending practices through good and bad times, their relational strength and value to auto retailers are strengthened.
Bob Child is COO of CU Direct. Email him at [email protected]