Industry Share of Car Loans Continues to Inch Upward

Credit unions have steadily increased their share of the auto lending market over the past year, as thrifts and auto finance companies lost ground.

Banks, the dominant auto lenders, have also increased their share. But in the first three months of 1991, the banking industry has retreated, while the credit union industry has continued its upward climb.

Average Rate of 10.5% Is Attractive

Some observers suggest the recent shift may reflect tighter loan standards by banks.

"It could be a tightening of credit requirements," Virginia C. Stafford, a spokeswoman for the American Bankers Association, said of the data. Because of the current economy and higher delinquencies, banks may be requiring higher down payments and shorter terms, she said.

It also may reflect the attractive rates available through credit unions. The average auto lending rate at credit unions was 10.5% in March, compared with 12% at banks, according to the Credit Union National Association.

Banks Still Have the Largest Share

Still, banks are in no danger of losing the market lead. They had 44.5% of the market as of March, up from 43.7% a year earlier, according to data gathered from federal agencies by CUNA. Over the same period, credit unions' market share has risen to 16.7% from 15.8%, the trade group reported.

Since the beginning of the year, banks have lost two-tenths of a percentage point, while credit unions have gained a similar amount.

Some observers said the early 1991 data are not sufficient to conclude that credit unions are advancing at the expense of banks. The first three months may be an aberration, reflecting declines in auto sales.

The banks are generally gaining, said Jerry Karbon, a spokesman for CUNA. "Those that are losing are the car dealers and the savings institutions," he said. In the past year, finance companies' share of the market has fallen to 25% from 27.6%, while savings institutions have dropped to 3.8% from 6%, according to data gathered by CUNA.

Michael Darrow, consumer information officer for the IBM Coastal Federal Credit Union in Raleigh, N.C., said banks have become noticeably tougher on auto borrowers. A borderline customer three years ago probably got the loan from a bank, but today he does not, Mr. Darrow said. "We've had people say their bank won't qualify them."

Still, he attributes only a small portion of his credit union's 10% auto loan growth in the past two years to credit tightening by banks.

Program Offers Practical Advice

He gives most credit to his institution's decision to provide counseling to consumers through Car Facts, a packaged program available from CUNA. The program instructs members how to determine if auto prices are fair, how to bargain with dealers, and how to compare finance packages.

Good interest rates and loan packages - including free credit life insurance, no prepayment penalties, and simple interest loans - also make the credit union attractive, Mr. Darrow said.

Wendell A. Sebastian executive vice president of the GTE Federal Credit Union of Tampa, Fla., hasn't found it easy to peel off customers from banks. Rather, his credit union has been embroiled in intense competition focused on interest rates.

Competition Becomes Intense

"The banks are as aggressive as we are down here," said Mr. Sebastian. "There's almost a price war going on. Part of the reason we lowered our rates was in response to aggressiveness of some of the banks."

Along with good rates, credit unions have used some sophisticated marketing ploys to lure auto borrowers. These efforts include special car sales held at the credit unions or dealerships and the addition of personnel to do car shopping for credit union members.

Unusual approaches to financing can also be helpful. Mr. Darrow of IBM Coastal said he has found success in counseling consumers to take advantage of the manufacturers' rebates, often offered as an alternative to lower interest rates. Once the customer gets the rebate, he can refinance at the credit unions' more attractive rates. "We feel we get more of our share that way," Mr. Darrow said.

PHOTO : A Year of Growth In Auto Lending

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