A few credit union lending lines—including commercial loans and credit cards—showed healthy growth in the year ending March 31.
But for auto lending, not so much.
The National Credit Union Administration recently revealed that total loans outstanding increased $52.8 billion, or 3.3%, over the year that ended March 31 for U.S. credit unions.
But auto loans fell $10.4 billion, or 2%, to $481.4 billion over the past year. Used auto loans contracted by $2.3 billion, or 0.7%, to $318.7 billion, while new auto loans declined by $8.1 billion, or 4.7%, to $162.8 billion.
So what is causing the auto lending lull?
Several factors may be contributing to the decline, including higher interest rates, says Jeff Voss, managing partner at Artisan Advisors. Credit unions often rely on competitive rates, but with the Fed maintaining elevated borrowing costs, affordability has weakened, Voss told Tyfone.
On top of that, rising delinquency rates have forced credit unions to be more cautious, limiting loan approvals. It is an industrywide issue, Voss said, as consumer debt is currently high.
“The auto lending landscape is challenging and extremely competitive, but credit unions that adapt their strategies can regain ground,” Voss said. “Their natural tax advantage over banks and finance companies should allow these entities to compete more aggressively from a pricing perspective. The key will be in its underwriting and future delinquency and loss rates.”
There has been no crash in auto lending for the world’s largest credit union, Navy Federal Credit Union.
A recent report by S&P Global Market Intelligence showed that Vienna, Virginia-based Navy Federal had the largest balance of auto loans at the end of the first quarter among U.S. credit unions. The $190.2 billion-asset organization had $32.73 billion of used and new vehicle loans at March 31.
Riverdale, Utah-based America First FCU reported the second-highest auto loan balance at $7.12 billion in the first quarter, according to S&P Global. That represented 0.4% growth for the $22.6 billion-asset credit union.
Rounding out the top five credit union auto lenders at the first quarter were Suncoast Credit Union ($5.91B), SchoolsFirst FCU ($5.89B) and Mountain America FCU ($5.46B).
And some smaller players continue to hold their own too.
Matt Selke, president and CEO of $152 million-asset Georgia Heritage Federal Credit Union in Savannah, told Tyfone the organization saw roughly a 5% increase in year-over-year organic auto loan growth.
“We were surprised by the increase because we had a budget for lower loan growth this year with all the uncertainty with the new administration and the economy and rates et cetera,” Selke said. “Everyone is waiting for a recession or slowdown, but we have been saying that for years now.”
Michele Makley, President and CEO of PFCU Credit Union in Portland, Michigan, told Tyfone her credit union has yet to experience a lack of loan growth.
The $832 million-asset company has experienced more than 8% total loan growth, mostly in consumer, auto, credit cards, and mortgages. PFCU had $405.1 million in auto loans at the end of March, which represents a 1% year-over-year increase.
“From a consumer perspective, rates are crucial, especially with the high prices of new and used autos,” Makley said. “It's challenging to add another significant payment to an already tight budget, and insurance costs have also risen significantly.”
Consumers are struggling to keep food on the table without going into debt from buying groceries, and Makley said time will tell how consumer confidence evolves in the coming months, but it will likely depend on rates and the cost of goods and services.
“Credit unions need to continue supporting their members' needs, which is what they do best,” she said.
What can credit unions do to drive more auto loans in the meantime?
Voss said they can start by enhancing their digital lending. Streamlining applications and approvals can attract younger borrowers, he said.
Additionally, expanding indirect lending programs by strengthening dealer partnerships can help capture more volume.
Selke said there is too much uncertainty right now to confidently make any predictions on lending for the remainder of the year.
“But our area's economy is really strong right now so I'm optimistic,” he 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 attract a wider membership base through their lending products, adopting cutting-edge digital banking technologies remains crucial.
