Banks still control the lion's share of the market for auto loans, but credit unions are nipping at their heels - and slowly but steadily stealing away their business.
In the year ending last August, the proportion of auto loans controlled by credit unions jumped by nearly 7%, leaving the industry with a 22.8% market share, according to data from the Federal Reserve Board and the Credit Union National Association.
During the same period, the Fed data shows the bank industry share of the market dropping 3%. Of course, that still leaves banks with 43% of the market, but credit union figures and auto industry analysts think the nonprofit cooperatives have a distinct advantage going forward.
"For the last four to five years, credit unions have been making slow but steady gains in the overall market for consumer loans, particularly auto loans," said Keith Peterson, an economist for the Madison, Wis., trade group. "We were losing market share during the 1980s."
Industry analysts cited the lower rates offered by credit unions, coupled with increased indirect lending activity, to explain the industry's gains.
"In general their rates are better," said Maryann Keller, an automotive analyst for New York-based Furman Selz. "Credit unions have become much larger financial institutions in recent years."
"What has really increased the market share has been pricing, improvements in member service - including faster turnaround times - and indirect lending," said Wade C. Barnett, managing director of the credit union financial services division of New York-based Bear, Stearns & Co.
In indirect lending, financial institutions buy loans that are made in the dealer showroom. Credit unions not only lend indirectly, but have been able to work out arrangements where they can deal directly with borrowers in the dealer showroom.
Bankers are feeling the sting of tougher competition.
"There's no question we have seen credit unions get interested in indirect financing of cars over the last three to five years," said John Abadie, president of dealer financial services for NationsBank Corp., Charlotte, N.C.
The gains by credit unions have largely been a retrenchment. Credit union market share tumbled during the 1980s as finance companies grew and more banks started indirect lending programs with auto dealers, Mr. Peterson said. It bottomed out at 16.6% in 1990.
But since then the industry has been gobbling a bigger and bigger piece of the pie.
In August 1992 it held 18.2% of the market; 19.6% a year later; and 21.4% the next year, according to CUNA.
"There was a period when credit unions were trying to figure out how to respond," Mr. Peterson said. "Now they have."
Credit unions have responded with sharper marketing, tougher pricing, and, increasingly, entering into indirect financing relationships with auto dealers, Mr. Peterson said.
As many as 20% of the country's roughly 12,000 credit unions either offer or are considering offering some form of indirect lending, said A. Rex Johnson, senior principal of Lending Solutions, a Cary, Ill., consulting firm for credit unions.
"Credit unions have become very aggressive in pricing and in service areas," he said.
In addition to the credit union industry's new found strength, one industry analyst said the market is being shaken up by internecine warfare between large and small banks.
Art Spinella, vice president of CNW Marketing/Research, Brandon, Ore., said more large banks have been focussing on auto lending and improving their relationships with dealers, where indirect loans are made.
"Smaller banks have a real problem dealing with that," Mr. Spinella said.
Meanwhile, the credit union industry's showing for all installment lending slipped to 13% in August 1995 from 13.1% in the year-earlier period, according to CUNA.
The modest dip breaks the recent trend of an increasing presence by credit unions in the consumer installment lending market. In the third quarter of 1992 credit unions held 12.4%, and in the same period in 1993 they had 12.9%, CUNA figures show.
The industry still isn't near its 1980 installment market share of 14.9%, Mr. Peterson said. Credit unions lost market share during that decade as credit cards - which many of them didn't offer - became more popular.
"Credit unions always did well with signature loans, but signature loans are losing importance with the rise of credit card lending," Mr. Peterson said.
He said the recent growth in the credit unions' share of the total installment loan market has been driven by hotter lending and more institutions offering credit cards.