ALEXANDRIA, Va.-New car loan rates just keep dropping.
CU lenders and automotive industry analysts see APRs at 2% and below as the real competitive point, and that FIs need to be prepared to possibly go lower.
Steve Troxel, VP of marketing for Pentagon FCU here, explained his CU has nearly doubled auto loan volume this year by slashing rate. "Our members are very rate savvy," he said.
For much of the year Pentagon has been offering an eye-grabbing .74% APR car loan up to 48 months on all credit scores. The CU does not risk price auto loans. The deal is good if members get a car through PenFed's car-buying service that is backed by TrueCar, or if they buy a car via Enterprise car sales. Troxel said TrueCar and Enterprise are buying down the rate. Last year the $15-billion Pentagon offered 0% via a buy-down deal through Enterprise (CU Journal, Aug. 20, 2012).
"If members don't use one of these two methods they get our standard 1.74% rate for 48 months," shared Troxel. PenFed has dropped its standard rate from 1.99%, where it stood last August. Like many other lenders, sub 2% is what consumers are paying attention to, CU lenders agreed. Many are saying they are not certain if the rate free fall has stopped.
How Low Can They Go?
Troxel said he is not sure how much lower rates can go with margins tightening, saying his CU's limited bricks and mortar with an emphasis on e-services permits the current low rates.
Pennsylvania State Employees CU in Harrisburg, Penn., as well, has a limited branch network and relies on the virtual model to return members low auto loan rates-1.49% up to 36 months and 2.49% for 60, said CEO Greg Smith.
While the San Antonio-based Security Service FCU is a bricks-and-mortar operation, what is keeping it going with new car lending is great service to the dealer and member, and, yes, often a rate near 2%, reported Charles Goss, SVP/CLO.
Tony Boutelle, president and CEO of CU Direct, Ontario, Calif., said he is hearing more credit unions stressing efficiency improvements not only to manage costs across the business but to afford low car rates.
Bank and credit union rates have been steadily dropping since 2008, falling more than 15 basis points year over year in 2012, according to Melinda Zabritski, director of automotive credit at Experian, Costa Mesa, Calif. She said the average new car rate among banks and credit unions fell to 4.36% in Q4 2012 from 4.52% a year prior.
Ricky Alessi, general manager at Atlantic Honda in Bay Shore, N.Y., summed up what's putting all the pressure on banks and credit unions: "How low does a lender have to go to be competitive? The factories right now are at 0.9% for 36 months and 1.9% up to 60. You tell me?"
