Three key strategies to reverse shrinking auto loan portfolios

Have credit unions peaked when it comes to auto loan growth? The question grows louder as credit unions’ share of auto loans slowly shrinks against steady pressure from competitors.

After the Great Recession of 2008, banks pulled back on auto lending and opened the door for credit unions to capture a large segment of the market. But history hasn’t repeated itself during COVID, the most significant market-shaping force since 2008.

Banks and captives have maintained hot pursuit of auto loan business, noticeably altering credit unions’ years-long upward trend line. While the captives’ share of the auto loan market has remained steady, banks’ share has increased in tandem with credit unions’ decline.

That said, it’s still very possible to maintain – and grow – auto loan portfolios. It just requires a more of a creative and forward-thinking approach to stay a step ahead of the competition. Is your credit union making the most of the following three strategies?

Expand Non-interest Income Opportunities

Research from Filene Research Institute shows that credit unions excel in loans to the used car market. Improvements in the reliability and longevity of cars have given credit unions more latitude to serve this market with longer-term, lower-rate offerings – and it’s been well-received by used-car buyers.

These relationships can be grown with greater emphasis on maximizing their value to members. Most credit unions can offer Mechanical Repair Coverage (MRC), Guaranteed Asset Protection (GAP), and other extended warranties at a far better value than the dealership. Filene is seeing credit unions further build on these successful offerings with insurance partnerships that deliver members prized benefits and savings while further streamlining their financial services.

While reinforcing the value proposition, these products and services incrementally drive non-interest income at the same time. Make sure your credit union is maximizing their exposure throughout the membership base.

Highly Targeted Campaigns: A Million-Dollar Difference

In a competitive marketplace, precision marketing can make the difference. In fact, it literally made a million-dollar difference for one Texas credit union’s auto refinance campaign.

To efficiently and effectively capture the auto loan opportunities that still abound, mass approaches must be abandoned. Today, multi-channel precision targeting and personalized outreach are key to performance. Relevant communications tailored at the individual member level is what’s needed to grab attention and elicit response.

When Capitol Credit Union of Austin, Texas implemented an analytics-driven refinance campaign, the results achieved in just 60 days were remarkable. A focused effort targeting fewer than 1% of their membership generated $1.3 million in auto refinance loans.

Using their own member data, custom criteria was developed to identify exactly which members would benefit from refinancing an auto loan. A multi-pronged communication approach reached members through their preferred channels and further enhanced the campaign lift. Though it was a more advanced execution, the use of powerful data analytics tools guided a surprisingly simple, yet highly effective process for recapturing auto loans.

Prepare for the Future of Driving (or Non-Driving)

Even five years ago, there was a lot uncertainty around the electric vehicle lending, but continuous improvements in EV quality and growing consumer interest should signal a green light to credit unions. Auto industry executives expect more than half of U.S. car sales will be electric vehicles by 2030 and the signs increasingly point to a transportation future that’s powered by electricity.

It’s time to think about what a green auto loan program looks like for your credit union. Even beyond lending policies for electric vehicles, consider what the members who own them will need. For example, home equity or personal loan products to help them install home charging infrastructure. Or, which partnerships will enable you to offer education about electric vehicle ownership, or rebates and incentives.

Though it seems like a far-off future, autonomous vehicles are poised to be a major market disruptor in coming decades. It’s possible that the market for auto loans will diminish greatly if the population moves away from individual vehicle ownership toward a shared economy of autonomous vehicle fleets. It’s important for credit unions to begin to conceptualize how to adapt to the potentially massive changes through evolved product offerings and acquisition strategies that replace auto loans as an entry point.

The auto loan market will likely remain very dynamic, but innovative credit unions have all the tools needed to compete and succeed. Continuing to embrace new strategies to deliver timeless values can return credit union auto loan portfolios to an upward trajectory.

Ann Farrell

Ann Farrell

Ann Farrell is the Director of Portfolio Growth at Trellance and has been leading Trellance’s Card Portfolio Growth Solutions since its inception in 2015.  She has more than 35 ... Web: Details