The “tables have turned” against banks and finance companies and in favor of credit unions, meaning CUs stand to benefit in the form of improved auto lending, according to an industry insider.
Rich Apicella, practice executive for automotive finance for BenchMark Consulting International, based here, advises executives working in the automotive finance businesses of credit unions, banks, captive auto finance companies and auto finance industry platforms. He told Credit Union Journal the auto lending market share for CUs has declined over the past two years due to competition in the marketplace.
“Banks and finance companies were out chasing money and that had an impact on credit unions,” he said. “Today, the tables have turned. Those same banks and finance companies are facing problems raising capital to lend. Unless you have a rich parent, such as Toyota, it is difficult to find money to lend.”
CUs have several advantages over other auto lenders, Apicella said. These include a lower cost of funds, better credit quality among borrowers and the fact credit unions pay lower dealer reserves compared to banks and finance companies.
Among disadvantages Apicella sees for credit unions: their auto loans tend to have longer terms for both new and used autos, and their competitors have invested heavily in technology and therefore have greater process efficiency.
“Credit unions have a loyal membership base and a loyal dealer base,” he said. “Also, credit unions have access to funds from the savings accounts, checking accounts and CDs their members put into their credit unions. Credit unions don’t have to chase money on Wall Street to lend, because they have access to bulk funds and are paying a modest cost on those funds.”
Sometimes, CUs simply cannot compete, Apicella said. He cited the example of General Motors’ 0% financing for 72 months offer. “When a car company runs that type of promotion, credit unions are not going to get that money. But when auto companies offer employee financing, then it is fair game.”
Credit unions’ scale is smaller, which gives them less money to invest in operations, Apicella assessed. He said this hurts CUs when it comes time to make collections. In addition, as repossession rates creep up, credit unions are less sophisticated in handling repos. Apicella said there is a cost in remarketing repossessed cars, which is higher for CUs than it is for their competitors who are savvier in the market.
All in all, he said: “I expect the two-year downward trend of market share will improve. There will be fewer new car sales made this year–15 million or fewer in total sales. Because the market is shrinking and there is strength in credit unions, you inevitably will see an increase in credit union market share.”(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
