As credit unions finished out the first quarter of 2018, I asked Mark Hein, CEO of The Financial Institution Group at SWBC, a few questions about how auto lending faired during the quarter and what’s on the horizon for the remainder of the year. Here’s the insight he provided during our recent interview.
Q. From your perspective, how is 2018 shaping up for auto lenders compared to 2017?
A. Most likely a little bit slower compared to 2017. The rising interest rates and higher prices for vehicles are causing people to hold onto vehicles a bit longer. Kelly Blue Book found that the January 2018 average transaction price for a new vehicle increased 4 percent from the same time last year.
Q. What do you find financial institutions are most concerned about in auto lending?
A. In a rising rate environment, I’m seeing credit unions who would like to be able to capture market share, but do it profitably. Competition is increasing so we’re seeing credit unions get more aggressive in their efforts to capture loans. Institutions are worried about cutting rates and margins, and buying too deep. And as more credit unions evaluate their portfolios, they are finding the ratio between indirect and direct lending off balance, relying too heavily on indirect.
Q. Do you see any opportunities that credit unions are missing out on and should consider for the future?
A. Credit unions should consider looking for opportunities to increase loan volume while keeping costs flat to improve margins. Taking a step back and thinking outside of what’s traditionally been done to place a credit union in front of potential borrowers.
Q. What can loan officers do to meet demands of their credit union while serving its members?
A. Loan officers can work to increase their credit union’s bottom line by offering products to 100 percent of their members during the loan process. The strategy that seems to be successful includes not making the purchase decision for members, because you never know who is interested in what product. Taking the few minutes to explain why products like GAP with PowerBuy™, MMP, and others will demonstrate to the borrower your credit union can cover them in a variety of situations.
Q. What’s on the horizon? What do you see as a potential future trend for lenders?
A Well, it’s a common theme you read about in just about every credit union focused article—digital, digital, and more digital. Digital shopping, buying, and financing for vehicles will continue as the trend. Companies like Carvana are doing everything possible to be disruptors. It comes down to finding ways for credit unions to stay relevant as competition grows from non-traditional challengers like retailers and Fintech.
Click to download our 2018 State of Auto Lending Ebook to learn about the future of the auto lending industry.