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Making progress

Credit unions gained some ground in terms of total share of the auto-lending market in 2016, but the banks still have almost twice as much of the total marketshare. With another record year of auto lending in the books, credit union insiders and analysts headed to Las Vegas this week for CU Direct's DRIVE conference.
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The future of auto lending

The annual DRIVE conference kicked off in Las Vegas with a full day of activities Wednesday. Attendees were told the headlines about falling auto sales, the subprime auto lending bubble and the takeover of driverless cars are more hype than substance.
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No subprime crisis

Michael Buckingham, senior director, PIN automotive finance for JD Power, addressed a number of topics that have been weighing on the minds of credit unions wondering if auto lending was going to continue to be healthy going forward.

Buckingham noted new loan terms now run 72 months and more, the highest levels ever, and a glut of used cars is hurting new car sales. On the subprime front, he said at JD Power, “We do not see the subprime market as a bubble or in crisis. Many dealers have reduced mix as delinquency and credit risk are increasing.”

The agency foresees continued strong sales, although limited growth is forecasted for 2017. The month of May might see a “small” year-over-year reduction, but 2017 could result in another record for new auto sales. He cautioned these records are powered by tactics necessary to maintain sales in a hyper-competitive market, and said there is a question as to whether those tactics pose a risk to the long-term health of the industry.

“Credit unions should see their share in both new and used vehicle financing grow as banks take a more cautious view of auto financing and captives pricing gaps widen,” he said. “Growth in non-prime and subprime lending may have peaked as lenders have become more cautious.”
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Peter Welch, president and CEO of NADA, the National Automobile Dealers Association, said no one can be in in the auto business today if they do not sell the same customer multiple cars and service those cars over a long period of time. “That is something dealers have learned from credit unions,” he said. “I see more and more dealers moving their business to credit unions because they have common interests.”

NADA’s economists expect sales between 16 million and 18 million cars for the next five years. “It is a cyclical business,” Welch said. “People use the term ‘plateauing’ but you have to admit 16 million or 17 million is a very nice plateau.”

Welch criticized the Consumer Financial Protection Bureau on several fronts, but saved his harshest assessments for the CFPB’s fair lending enforcements. He termed them “Backwards-looking statistical reviews” of lending numbers, adding, “If you are off by 10 basis points the CFPB calls you a discriminator. This is a blow to your reputation.” Welch said he met several times with CFPB Director Richard Cordray and explained the “ecosystem” and the methods dealers use to discount credit for the benefit of customers. As a result, he said, credit markets are “as robust as they have ever been.”

He noted there had been 13 fair lending investigations, but the Justice Department is no longer enforcing them. “NADA has made available a voluntary fair credit compliance program. There is no room for discrimination in our business or in any business, in my opinion.”
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People will still buy cars

Despite all the headlines about autonomous vehicles, Uber, Lyft and the sharing economy, and Millennials not buying cars, NADA expects the auto buying model to be the same 10 years from now as today. Welch noted many said the Internet would put dealers out of business, but they were the earliest adopters of marketing online. “AVs are coming, but they still had a long way to go. When are people going to trust their life to these cars? The biggest question is personal ownership. People who are used to having their own car and go where they want to go on their own timetable will want their own car. There is a place for Uber and Lyft, but if you are not in an urban area you have to wait.”