Hitting The Gas

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With all the groaning over the high price of gas, here's a piece of irony: the vehicle that saw the sharpest increase in sales during 2005 was, of all things, the gas-guzzling Hummer.

"I was surprised to see that," said Credit Union Direct Lending CEO Tony Boutelle. "So I guess not everyone is getting rid of their SUVs because of gas prices." Not that Hummer is immune to rising gas prices. The company rolled out two other models, each smaller than their predecessor.

Regardless of the type of vehicle financed, the key question for credit unions remains competitiveness in auto lending, especially if mortgage volume slows.

For the third year, CUDL is once again gearing up for the National Automobile Dealers Association Convention in February in Orlando, where it will sponsor a booth aimed at presenting credit unions as a powerful partner for dealerships. Boutelle doesn't believe credit unions will become lost in the giant trade show, especially since he noted the indirect auto lending network has become a dominant force in some markets.

"This is the largest automotive event of the year, and the goal is to create awareness that credit unions are a viable option," Boutelle related. "The results from the first couple of years that we did this was that credit unions enjoyed it and got a lot out of the meeting, but there's not as much individual upside."

For example, a credit union from San Diego is most interested in hooking up with dealers in San Diego, but it's a national convention and the CDUL booth is reaching out to a national market.

"So, this year we told our credit unions that we can represent all of our credit unions, but if you would like to come, you're welcome to do so," he offered. "We lowered the cost to participate, and the end result is that we have the same number of credit unions that want to come this year, too."

And as credit unions make bigger and better strides in the auto lending marketplace, the dealers and the auto aggregators such as AutoNation and others, are taking notice.

"On the West Coast, CUDL is the No. 1 originator of auto loans. We had a tremendous year. We funded $15 billion in auto loans in 2005, and $10 billion in 2004," he said. "And credit unions-either singly or as a group-are the biggest originators in a number of different states right now. When you get that big, people start noticing. Believe me, the captives have taken notice."

While Boutelle said he is really looking forward to the NADA convention, he said that the recent Ford layoffs announcement could put a bit of a damper on the show.

"This is where manufacturers get to spend time with their dealers, and sometimes that is a challenging relationship," he noted. "At some point, that kind of downsizing does impact the dealers because layoffs mean you're building fewer cars, and that means fewer cars to sell."

Americans certainly haven't ended their love affair with autos. "This was the third biggest year for new car sales in history," he pointed out. "It was just shy of $17 billion."

So, does this mean Americans will continue to ignore the high gas prices and the rising interest rates and keep taking out loans to buy more cars?

"Coming off the third biggest year in new car sales, that could mean that new car sales this year will be a little lighter," Boutelle suggested. "But used cars are still really the staple for credit unions. Used car loans represent about two-thirds of credit union auto lending, so we don't expect credit unions to be impacted by this."

Of course, those people who are trading in their SUVs and trucks for more gas-efficient cars will still need loans for those cars, so that will help with loan volume, Boutelle said, adding that it's hard to say for sure whether those loans will end up being smaller than the truck and SUV loans they ostensibly will replace.

The Need For Speed

Due to the seasonality of auto loans-which traditionally heat up in April through September and then begin to taper off in the winter months-Boutelle said he hasn't been surprised to see auto loan volume decline in recent months, and added that that annual tapering may be somewhat augmented by increases in gas prices and interest rates.

And regardless of the season, Boutelle said the big message for credit unions that wish to partner with auto dealerships remains speed. "Flooring costs for auto dealers have risen because of the higher interest rates," Boutelle explained. "At one point, the cost of flooring cars represented about 10% of a dealership's costs overall. Now it's 30%. So the faster they can move those cars, the happier they will be."

Credit unions can help by finding ways to fund their auto loans faster. "In this tough market, besides being excellent at servicing the dealers, credit unions also have an advantage in that they can help dealers sell cars," he added.

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