COLORADO SPRINGS, Colo.-High demand for used cars has created a bubble that one person says could burst within the next six to 18 months.
That view echoes a similar prediction made by other analysts (
"All it will take for that to happen is a continued increase in demand for new cars, which will get people to come in and trade in their used car," said Bill Vogeney, EVP/chief lending officer at Ent FCU and vice chair of the executive committee for the CUNA Lending Council. "Dealers will be getting more used cars in the dealership and there will be fewer people to buy those used cars, because they prefer to buy a new car. It's basic supply and demand; it's happened before, and it'll happen again."
Vogeney said that the robust market for new cars in Q1 and Q2 has been one of the major surprises so far in 2012. He predicted that will continue, and said that while some CUs have had to reprice loans-particularly as competition from banks and dealers has driven auto rates down to 1.99% or even lower-Ent has not had to adjust as much as the competition, in part thanks to a strong position in the market (200,000 members in a community of about 550,000) and the ability to drive activity to dealer partners.
Vogeney cited a statistic from a recent issue of Auto Finance News that rates on A+ paper have dropped by nearly one percentage point in the last year, but said that for his own shop, "where the market has lowered rates by a full percent, I think we're less than half a percent."
End To The Feast?
Along with new car lending, Vogeney said that CUs that "are actively making mortgages and doing 30-year fixed and what not have got quite a bit of loans in their pipeline. We haven't really had a break in about three years from mortgage demand for refis, and credit union marketshare on the mortgage side continues to grow."
But he cautioned that CUs-which he said have "typically feasted on refinances-could be in for trouble when rates begin to increase. He stressed the importance of establishing a position in the community and building relationships with Realtors. "Probably a lot of credit unions are making a lot of money on refinance loans, but as soon as rates go up half or three-quarters of a point, that volume is going to dive," said Vogeney. "If they haven't built up purchase volumes, they're going to be twiddling their thumbs. The loss of refinance volume is going to hurt everyone, but it's going to hurt those that haven't participated in the purchase market even more."
Credit card lending also offers the potential for strong growth moving forward, and Vogeney noted that Ent FCU is looking at re-entering the credit card market after selling its portfolio off 11 years ago. SAC FCU (Belevue, Neb.) and Eli Lilly FCU (Indianapolis) have recently indicated plans to buy back their respective credit card portfolios from BofA.
"We think it's a great time to get back into that market for a couple of reasons," he said. "One, we hope the economy is on the upswing, and getting ahead of the recovery curve is important. Two, on the heels of the CARD act being implemented several years ago, consumers still have in the back of their mind what the banks did to them in terms of raising rates dramatically and lowering limits." He pointed out that banks right now are relying on rewards programs to fuel credit card growth, but CUs can still provide strong competition on rate.
