Credit unions expanded their auto loan portfolios at nearly twice the rate of the competition during the first six months of 1994.

The industry's car loan portfolio grew 12.4% during the six months ended June 30, compared with 6.4% growth for the total auto loan market, according to figures compiled by the Credit Union National Association.

Credit unions gained by keeping rates low and becoming more aggressive, analysts and industry officials said.

"As market interest rates rise, financial institutions have been increasing their loan rates," said William F. Hampel, chief economist for Madison, Wis.-based CUNA. "Credit unions have trailed the market in rates they offer."

Auto rates at credit unions were 80 basis points to 110 basis points lower than at banks during the first six months of 1994. This is up from a 40-basis-point to 60-basis-point gap last year, Mr. Hampel said.

"An 80- to a 110-basis-point difference is enough for the consumer to notice," Mr. Hampel said. The average credit union's new-auto loan rate is 7.15%, compared with the average bank's rate of 8.37%.

The new-auto loan portfolio at North Carolina State Employees Credit Union jumped 40.7%, to $157.7 million, during the first six months of 1994.

"There's no magic formula. We just offer the lowest rate and high convenience," said James C. Blaine, president of the Raleigh-based credit union, which has $3.7 billion of assets.

The credit union offers a fixed, five-year 6.5% rate on new cars and can dose loans in 30 minutes, Mr. Blaine said.

Through June 30, the industry's outstanding auto loans grew 12.4%, to $62.6 billion. That's more than a third of the industry's total loan portfolio, according to CUNA. The rate of growth this year is 44% higher than in the year-earlier period, when auto loans grew 7%.

New-car loans grew 12.1%, to $37.1 billion, during the first six months of 1994; used-car loans were up 13%, to $25.5 billion.

Thanks to this expansion, the industry gained a larger slice of the $300.4 billion auto loan market. Credit unions controlled a 20.8% share of the market as of June 30. That's up from 19.5% a year earlier.

These gains were registered in spite of larger credit unions' focus on mortgage lending until recently, analysts said.

"Because interest rates have increased and the refinance business is down, credit unions are jumping back to their traditional business of auto lending," said Jim Ray, chief operating officer for Callahan &. Associates, a Washington-based consulting firm.

In fact, as of June 30, new-car loans were the credit union industry's largest category, edging out first mortgages for the first time since 1992.

Credit unions are tougher competitors than they used to be, said Charles Idol, a Dallas-based analyst.

"There's been a very concentrated effort by credit unions to get after auto loans with aggressive rates and marketing," Mr. Idol said. More credit unions are starting to get involved with indirect lending. Others are tracking down members who have an auto loan with a different financial institution and refinancing it.

"Some credit unions have been using lien search services as far back as two years," Mr. Idol said. "This is something that'll become bigger."

Navy Orlando Federal Credit Union has been using Department of Motor Vehicle lists to hunt down auto loans it could refinance, said president Ed Baranowski.

The $358.5 million-asset credit union's total auto loan portfolio grew 51.6%, to about $51 million, during the first six months of the year.

Using the DMV lists to find members who had loans with other institutions "brought in a substantial amount" of those loans, he said.

Mr. Hampel said the industry's exceptional auto loan growth rate of the past 18 months - 21.2% for new-car loans, 35.6% for used - is peaking.

It should remain strong for about 18 months, but slow down as more credit unions raise loan rates in response to. tightening margins.

"Surges like this can't go on forever," Mr. Hampel said. "It is the underlying gap in loan rates that has fueled the growth, and it's going to become less dramatic eventually."

This forecast doesn't alarm Mr. Baranowski, who has faced stiff competition in his Florida marketplace over the past year. Some bankers have made it their mission to price auto loans below the credit union's rate, he said.

"They don't want credit unions to get those loans," Mr. Baranowski said. "But we still get them."

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