RANCHO CUCAMONGA, Calif.-As the credit crisis has left many Americans-even those with strong credit scores-out in the cold, consumers are increasingly turning to credit unions, pushing CU auto lending share higher than it's been for years, even in the midst of slumping auto sales.
According to CUDL, total credit union loan volume is down 8% January through August versus the same period in 2007, and CUDL's loan volume is down about 2%; but given the double digit declines in home and auto sales across the country, it is clear that CUs and their CUSOs are weathering the storm far better than many big lending counterparts.
Auto Lending Steadily Increasing
In fact, credit union auto lending market share has been more or less steadily increasing since the start of the year. Indirect loans originating from credit unions took up 15.8% of the market in January, but that figure jumped to 20.5% by August and it may continue to rise.
Chrysler Financial and GMAC have left the market altogether while other auto manufacturers are no longer offering leasing terms. Left with a narrowing window, many of those consumers are turning to credit unions.
"They are looking at credit unions because typically CUs provide the loan terms and the type of financing that are very competitive when compared to other financial institutions," said Bill Meyer, communications specialist for CUDL. "What we are telling our credit unions is that now is a time to capture a larger market share because of the circumstances. This is an ideal time for CUs to be more aware of what is going on."
Other organizations are seeing not only a spike in market share but in real volume as well. In the last few months, CU Direct Connect, a Colo.-based CUSO owned by 34 different credit unions across the state, has seen its best indirect lending volumes of all time.
The organization processed more than $126 million in vehicles loans in August, then a record for the program that has been around since 1993. The CUSO, which does business with 50 credit unions in Colorado, broke its own record in September when it funded more than $151 million in loans.
Marketing manager Carrie Helmers credits a revamping of the program at the end of 2007, as well as gross mistrust between consumers, dealers and big lenders as chief among the reasons CU Direct Connect is seeing record volume-as business partner credit unions financed 2,012 new vehicles and 5,516 used vehicles last month. Though sales of new cars are hitting decade lows, used vehicle sales are fairly stable-a good sign for credit unions' bread and butter.
"That's really where the credit unions' niche is," Helmers said of the used vehicle market. "There is also a lot to be said that GMAC and a lot of other lenders have left the market. We've been a program in Colorado for 15 years and we've been stable. They know that we're here and we've been able to give answers to dealers."
Loan Volume Exploding
Teres Solutions, a financial services provider, has seen its loan volume explode with many credit unions who use the firm's lending platform reporting "exponential" increases. CEO Tim Kelly said Teres experienced a 40% volume increase from September 2007 to September 2008. He credited the departure of big banks and other huge lenders from the marketplace as the chief reason credit unions are seeing a boost in volume.
To ensure that they do not fall into the same financial black hole that has gobbled up so many once-venerable institutions, CU Direct Connect has a strict risk management system in place. The average FICO score of a member securing an auto loan through the CUSO is 730, though there are plenty of individuals with average scores that can obtain a loan as dealers balance the risk load.
"The dealers are going to reward the credit unions for stretching a little on the harder to place loans by sending them some of the safer loans as well," Helmers pointed out.
Helmers is confident that Colorado credit unions can capture additional market share and hold that position, or even expand upon it, when the current crisis eases and big lenders return.
"The other lenders are going to come back but because we do have such a relationship with the dealers, we're trying to build and expand upon that so that when the others come back, the dealers will still be looking to the credit unions as the solution to their problems and members are looking to their credit unions to get financing," she said.
Kelly said the vast majority of credit unions are not changing their lending practices at all; they remain risk averse and are still getting high quality applications.
"The applications that are coming in are still good and they don't have to make a fundamental shift to get those applications," he added.
With GMAC and Chrysler out of the leasing business and the former cutting back on 60 and 72-month loans, credit unions in many pockets of the country have all of a sudden become the biggest and best game in town.
"They have capital, they have liquidity and they are positioned well. There are no issues with credit unions as far as safety and soundness," Kelly said.
