CINCINNATI — August wasn't a clunker for auto loan volume, according to credit unions that havea strong ties with car dealers.
Auto loan volume was up significantly through indirect channels thanks to Cash for Clunkers, a number of CUs told Credit Union Journal. But some are wondering if that boom may lead to a bust in the months ahead. At the $980-million General Electric CU here, CEO Patrick Taylor reported that his credit union financed 1,754 cars last month, representing a $30-million increase. "We normally finance about 800 to 1,000 cars a month," Taylor said.
Having relationships with 150 dealers in more than five Ohio counties, GECU expected the spike in car loans and prepared for it, Taylor said. "I told our loan people to closely look at the credit quality of borrowers taking advantage of Cash for Clunkers. We thought we might have to be a little more careful with them."
GECU wanted to make sure these car buyers had "some skin in the game," and required members with less-than-stellar credit to put some of their own money down. "I didn't want them to just put down the $4,500 government credit. I wanted some of their money, too."
Turns out credit quality was good in most cases, Taylor said. GECU charged 5% on 60 month terms at press time. Overall, auto loan volume is up at the credit union by 40% this year.
But August's good fortune likely comes at a price, according to the $5.3-billion Security Service FCU, the largest CU indirect auto lender in the U.S. "Cash for Clunkers has probably cannibalized business in September and possibly a little beyond," said SVP John Worthington. "So we expect to see a downturn."
SSFCU's June and July indirect auto loan volume was on par with the same period last year, he said, adding, "but we saw a big jump in August, when we moved $129 million this year, a 4.75% increase over August 2008." Worthington surmised that the jump in August coincided with the end of the program and buyers jumping in before it ended. He also said the San Antonio-based SSFCU predicted the increase but was unsure what kind of borrower the program would attract. "For the most part it was good credit scores," Worthington noted. "We saw a lot of borrowers putting down their own money." Security Service charged between 4.75% to 5.5% for 48 months, depending on the member's credit score.
In Columbus, Ind., the $800-million Centra CU, which relies heavily on indirect channels, saw auto loan volume pick up by 25% in the last two months. Nan Morrow, VP-corporate development, also attributes that to Cash for Clunkers, the improving economy, and special promotions at the CU. Centra is running three deals that end this month that award lucky members with more than $17,000 in auto loan payments.
At the $18.6-billion State Employees CU in Raleigh, N.C., Bobby Gardner, SVP personal lending, said its new car loan originations jumped about $3 million in August, without any of that coming from indirect lending. "In July we did $9.4 million and 438 cars," Gardner said. "In August we did 606 originations for $12.5 million."
At press time the Rancho Cucamonga, Calif.-based Credit Union Direct Lending (CUDL) had yet to receive its third-quarter numbers to determine the impact Cash for Clunkers had on its credit unions. But corporate communications and PR lead Bill Meyer said car sales totals from the Big Three indicate that credit unions should show solid results through July and August. "July auto sales were over 995,000 across the board," Meyer said. "It was the strongest month for auto sales thus far in 2009."
