CUs picking up auto lending market share from banks: Report

A new study confirms what bank CEOs have been saying for months: The banking sector is retreating in automobile finance. And the good news for credit unions is CUs are stepping up to narrow the gap.

During the first quarter of 2017, banks provided 32.5% of the financing for U.S. auto loans and leases, down from 34.8% in the same period a year earlier, according to an Experian report released Wednesday.

The market share relinquished by banks is being picked up by credit unions and the financing arms of auto manufacturers, the report shows.

Credit unions’ share of the auto finance market rose from 18.0% in the first quarter of 2016 to 20.0% in the same period a year later. And the market share enjoyed by finance units of auto makers rose from 26.2% to 29.3%.

According to the latest Credit Union Trends Report from CUNA Mutual Group, CU auto balances rose by 1.5 percent during March 2017, down slightly from a 1.7 percent lift in March 2016. Used auto loans had a seasonally adjusted annualized growth rate of 16.2 percent in March, the fastest pace on record and the best rate since the height of the dot-com stock market boom in 1999, CUNA Mutual reported.

Banks with large footprints in auto lending including JPMorgan Chase, Ally Financial and Wells Fargo have scaled back in recent quarters. The moves are coming at a time of intense price competition and concerns about growing risks in the sector.

“Bottom line is we’re eyes wide open with respect to the backdrop for auto lending,” Ally CEO Jeffrey Brown said during the company’s first quarter conference call.

Many banks embraced auto lending in the wake of the mortgage bust, as their low-cost deposit funding provided a key advantage over lenders that relied on the capital markets for funding.

But as auto sales boomed, competition intensified, and loan standards became more lax. During the first quarter of 2017, the average loan term on a new car was 68.5 months, up from 64 months five years earlier, according to Experian.

Longer loan terms enable more borrowers to qualify with affordable monthly payments, but they also can also leave lenders on the hook for bigger losses when borrowers default.

The new Experian report offers a mix of good and bad news with respect to the risks lenders are currently facing.

On the positive side, the percentage of auto loans that are at least 30 days late fell from 2.07% in the first quarter of 2016 to 1.93% in the same period this year.

On the other hand, the share of car loans that are at least 60 days past due rose from 0.58% to 0.66%.

Overall credit union delinquency rates stood at 0.74 percent in March, according to CUNA Mutual Group.

States with the highest delinquency rates on auto loans are largely concentrated in the South, Experian found. Those states include Louisiana, Mississippi, Alabama, Georgia, South Carolina and Texas.