As the auto loan market softens nationwide, credit unions are adapting their strategies to stay competitive, with some pulling back on indirect lending while others double down on relationships with auto dealers.
Curtis Onofri, chief lending officer at Pathways Financial Credit Union, a $754 million-asset institution based in Columbus, Ohio, said his organization began scaling back indirect auto lending two years ago.
“We mostly focus on working with fintechs to generate some indirect business,” he told Tyfone in a recent interview.
Despite the shift, Pathways still carried more than $33 million in indirect auto loans through June 30, in addition to $96 million in “other” indirect loans, according to federal call report data.
Interestingly, Navy Federal, the largest credit union in the world, does not participate in indirect auto lending. Still, the $191.8 billion-asset institution had roughly $33 billion in auto loans as of June 30.
At the same time, other credit unions are ramping up efforts to expand their presence in the indirect lending space.
“Our indirect program at PFCU is thriving,” said Michele Makley, president and CEO of PFCU Credit Union in Portland, Michigan. The $822 million-asset credit union reported a 3% year-over-year increase in indirect auto loans, climbing to $176.5 million by the end of the second quarter, up from $172 million a year earlier.
Makley credits much of this growth to proactive engagement with auto dealers.
“We make regular visits to monitor the program's progress and promptly address any arising issues,” she said, noting that the credit union has added more dealers in recent years to meet growing member demand. “While we may not have the lowest rates, our competitive pricing and smooth process for both dealers and members set us apart.”
The mixed strategies reflect broader headwinds facing the auto lending market.
The National Credit Union Administration has yet to release its full second-quarter report, but early figures show auto loans fell by $10.4 billion—or 2%—to $481.4 billion in the year ending March 31. New auto loans saw a sharper decline, dropping $8.1 billion, or 4.7%, while used auto loans contracted by $2.3 billion.
The broader market for new vehicles also showed signs of weakening. According to TruStage, new vehicle sales dipped in June to a seasonally adjusted annualized rate of 15.3 million—down 1.7% from May and marking the first back-to-back monthly sales decline since mid-2023.
Still, the indirect lending model remains appealing for many credit unions seeking to deploy capital efficiently, even as it poses challenges in member engagement.
“In most economic scenarios, indirect auto lending is a very competitive business,” said Dennis Holthaus, a credit union consultant and former CFO of Northwest Federal Credit Union in Virginia. “There are the auto manufacturers’ captive finance companies, the large national banks, and then the credit unions, where indirect loans are a significant share of the portfolio.”
According to Holthaus, successful credit unions don’t necessarily win business by offering the lowest rates or the longest repayment terms. Instead, strong dealer relationships, fair compensation, and timely underwriting decisions are key. “It’s really a relationship business—not with the car buyer, but with the auto dealer,” he said.
However, those relationships can come at a cost. Holthaus warned that indirect lending often fails to convert borrowers into fully engaged credit union members.
“The fact that the credit union provided the auto purchase financing just doesn’t garner any short-term loyalty,” he said. “In a lot of cases, the borrower doesn’t even acknowledge who the lender is.”
As competition intensifies and the auto market shows signs of deceleration, credit unions may find themselves increasingly divided between those like PFCU, investing in long-term dealer partnerships, and others like Pathways, exploring more digital avenues to indirect growth.
Whether either path leads to lasting member engagement—or simply higher loan balances—remains to be seen.
“While indirect lending programs are certainly a way to deploy deposit dollars and increase loan-to-share ratios, it is not a way to increase the fully engaged membership of the credit union,” Holthaus said.
Portland, Oregon-based Tyfone is a leading provider of consumer and commercial digital banking services for community financial institutions. At Tyfone, we believe that as credit unions strive to expand their lending, adopting cutting-edge digital banking technologies remains crucial.
