The Rise of Credit Unions in Auto Finance

The Rise of Credit Unions in Auto Finance

As credit unions consolidate, their membership bases are growing. In 2017, the number of members per credit union grew to nearly 20,000, up from 13,700 in 2012.To get more auto finance news, you can visit shine news official website.

At the same time, credit unions increased total balances by 10% year-over-year, reaching $972 billion – or 7.7% market share – in 2017.[2] As they grew, credit unions captured more market share in auto – at the expense of banks. Between 2013 and 2018, credit unions’ market share rose 8%, while banks declined at the same rate.[3]

To understand how credit unions surpassed banks in auto finance, we analyzed our consumer credit database and found credit unions adopted four strategies.In response to early signs of rising delinquency, many banks tightened their underwriting policies for auto loans and leases between Q3 2016 and Q4 2017.[4] By the end of the pullback, our data shows originations had declined nearly 5% year-over-year. Credit unions took advantage of the void in the market, and gained share across all credit tiers except subprime. They increase their share of super prime originations by 14% and prime plus by 12% between 2013 and 2018.[5]

As the Federal Reserve raised interest rates, banks began to pull back on term extensions over concerns about consumer affordability.[6] In response, our data shows that credit unions undercut their competition on rates and extended terms to a larger percentage of borrowers. By 2018, credit unions captured 55% of the share of auto loans between 76 and 84 months and 53% of the share of loans beyond 85 months.[7]

The used vehicle market in auto is growing faster than the new vehicle market, and credit unions saw an opportunity. With 31% of the share of used vehicle loans and leases between 2016 and 2018, credit unions are in a strong position to continue to capitalize on the growth.[8] On the other hand, our data shows that banks have just 21% share of used vehicle financing.

Although auto refinance makes up less than 10% of the overall market, it is expected to double or triple in size to reach between $80 and $120 billion.[9] In preparation for the growth, we observed credit unions capturing the majority of the auto refinance market, taking share from captives and independents. Before refinance, credit unions have just 13% of the share of auto loan and lease originations; after refinance, it spikes to 68% of the share, compared to 24% share for banks.[10]

As member-owned cooperatives or non-profit corporations, credit unions can also reinvest funds into consumer programs, while banks often reinvest income to earn more profits or pay back shareholders.

As the auto market shifts and evolves in the coming years, credit unions that adopt these strategies may have a competitive edge over banks. To maintain their lead, credit unions should continue to identify consumers in-market for used vehicles, prescreen consumers with the loan-to-value for auto refinance and offer the best pricing.

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