With new and used auto sales breaking records in recent years, credit unions have seen a significant boost in both direct and indirect auto lending. But will that boom last into 2017? Credit Union Journal turned to auto industry analysts and lenders to get a peek at what the year ahead could hold.
Frank Rinaudo, SVP at GrooveCar
Noting that 2016 was a record year for new car sales – in excess of 17 million vehicles – GrooveCar SVP Frank Rinaudo suggested 2017 should be very similar. "Either it's going to level off or even drop just a bit in new car sales, but it's going to be a very strong year," he said.

"There are two opportunities that we're impressing upon our credit unions. First and foremost is leasing," Rinaudo offered. "New car automobile leasing was the highest it's ever been on record in 2016. Over one-third of all new cars sold throughout the country were leased, which is a tremendously high number…Where we're based out of in the New York metro area, new car leasing is anywhere between 60% — 70% of all new cars sold. You have areas like the east coast, New York metro, New Jersey, parts of Massachusetts, South Florida, Southern California…anywhere between 50% — 70% of all new cars are leased."

Used Car, New Opportunity
Somewhat related, Rinaudo continued, is that leasing increased dramatically several years ago and has been increasing ever since then. "In 2017 and over the next few years, many of those vehicles are going to be coming off lease," he explained. "A big opportunity for credit unions is certified pre-owned vehicles or off-lease vehicles. Typically they're two- to three-year-old vehicles with low mileage, and there's a big opportunity because so many of them are coming back. What we've spoken with our credit unions about and will continue to do in 2017 is putting not the new car rate or a used car rate, but almost creating a new category for these cars, where it's a blend between the new and used rate for certified pre-owned and lease returns.

"I would caution credit unions, because I see a lot of banks getting into near-prime and subprime lending. If you don't have the expertise in that field, I would caution credit unions to say away, because the losses can be great if you don't have the expertise."

Karen Casler, compliance manager and product development manager at CASE CU, Lansing, Mich.
According to Karen Casler, compliance manager and product development manager at Lansing, Mich-based CASE CU, subprime auto loans still represent a "great" growth opportunity for credit unions. "These [loan customers] are on the fringe and are just now starting to be eligible for low-cost car loans and, in turn, improve their financial standing going forward."

CASE CU, Casler noted, has been helping members who are looking for a newer car, but cannot afford the payment. "CASE has initially offered the 'Responsible Rides' [RR] program to those who do not qualify due to high [payment terms] — if they cannot qualify for a traditional auto loan we move them over to the RR program at a payment [plan] they can afford."

Keeping Risk in Mind
With respect to lending and underwriting standards, Casler explained that CASE CU has "carefully determined" its ability to offer the program while being aware of risk tolerance issues. "We have found those who have taken out this loan are making their payments on time," she said.

"Again, we have special collectors who are [keeping in touch with] the RR members regularly to assure they are on track. This will help them improve their credit standing for their future."

She recommended that if credit unions want to wade into the subprime auto loan pool, they have to determine their own risk tolerance levels, based on their financials and ability. "It is a very individual determination [for] each credit union," she said. CASE has intentionally kept the subprime auto loan growth trajectory slow "to ensure we are helping our members and protecting the credit union from undue risk. We have not yet advertised the product, but intend to start advertising in the New Year with our community partners."

Jason Laky, Senior Vice President-Automotive & Consumer Lending Business at TransUnion
"Every credit union has some members with subprime credit, and the unique relationship that credit unions have with their members can offer the credit union a lending advantage over just another bank or independent lender. That said, it is still important for credit unions to follow prudent underwriting standards, both for the benefit of the member and the credit union."
Brien Joyce, VP, EFG Companies
According to Experian, credit unions picked up market share in Q3 2016, which makes sense considering consumer sentiment around deceptive lending practices, suggested Brien Joyce, vice president with EFG Companies. "Consumers are looking for lenders they can trust, and credit unions have a long history of business practices that are in their members' best interest. While auto loan closing ratios are still higher at dealerships, credit unions are closing the gap by enhancing member services and benefits."

As part of this trend, Joyce said EFG has seen its credit union partners utilize consumer protection products, such as vehicle return protection, and vehicle service contracts on a 12-month complimentary basis as a marketing tool to increase auto loan growth. Subsequently, he said, credit unions capitalize on this offering to generate revenue via full loan-term upgrades.

"Credit unions have taken note of the significant competitive and profitability advantages consumer protection products provide, and are investigating the best ways to implement them. This includes an expanded investment in loan officer training and member outreach," Joyce observed. "In 2017, I would expect an upgrade in the overall skillset of credit union loan officers to close more auto loans, as well as an increased reliance on competitive consumer protection products to differentiate their offerings. This will inevitably help credit unions close more direct auto loans."

Perc Pineda, senior economist at the Credit Union National Association
Lower auto sales [are] expected in 2017 compared to 2016 and 2015, according to Perc Pineda, senior economist at CUNA, when he was interviewed for a previous CU Journal story. "Membership next year could be slightly lower as the auto lending boom begins to slow and indirect borrower memberships decline," he said.