Summer is well underway and credit union lending—like the weather—is heating up.
Credit union loan portfolios are up 2.7% through April and are on track to grow at a double-digit rate in 2016.
If that happens, it will be the first time in nearly 30 years that the movement recorded three consecutive years of double-digit gains in loans outstanding.
The driving force behind big credit union loan gains will almost certainly be automobile loans. Modest inflation pressures will keep market interest rates low through the end of 2017.
That, combined with continuing improvement in labor markets (more hiring and higher wage gains), will buoy consumer confidence and will keep auto sales—both new and used—chugging along for the foreseeable future.
That’s good news. Car sales and credit union auto lending came to a screeching halt during the Great Recession.
Nationally, new-car sales averaged 16.7 million units during the decade prior to the downturn. In 2007, new-car sales were 16.1 million nationally but fell 35% over the next two years to 10.4 million in 2009—a 27-year low.
Not surprising, credit union auto lending followed the national trend.
Overall, credit union vehicle loan portfolios declined for four consecutive years, dropping 7.5% between 2006 and the end of 2010.
In the aggregate, if new-vehicle sales hadn’t declined—if they stayed steady at 16.1 million units during the downturn and subsequent weak recovery—the economy would have experienced more than 18 million additional sales.
That’s over one year of sales that didn’t occur. This helps to explain why the average age of cars on the road (11.5 years) now hovers near all-time highs.
It also suggests a good deal of pent-up demand remains in the marketplace, with more purchases to come.
Make no mistake, many car buyers who were sitting on the sidelines several years ago recently have jumped into the market. That’s abundantly clear.
Credit union new- and used-auto loan portfolios both grew more than 10% in 2013, 2014, and 2015. And year-over-year growth as of March 2016 for both loan types remains at those lofty levels.
The fast growth has automobile loans accounting for a larger share of total credit union lending. Overall, auto loans now account for 34% of all credit union loans (with nearly two-thirds of the total in used-auto loans and one-third in new-auto loans).
The current portfolio concentration at credit unions is the highest since year-end 2006. Experts believe there’s more to come.
The National Automobile Dealers Association forecasts 2016 new-car sales to come in at 17.7 million units, a 2% increase over 2015.
That forecast would be even stronger but softening used-car prices resulting from increased supply from trade-ins and off-lease vehicles are expected to bring down used-vehicle prices and boost used- vehicle demand during the year.
Importantly, while our baseline forecast calls for market interest rates to stay low this year, when market rates begin to increase, favorable credit union pricing will grow even more obvious.
In that environment, the current credit union value proposition will help to ensure additional significant gains in both new- and used-car lending. The pricing difference translates to big consumer benefits.
A consumer who finances $30,000 for a new car on a five-year term would pay $534 monthly at the credit union average rate and $550 monthly at the bank average rate as of mid-June 2016.
Over the life of the loan, that difference in monthly payments results in an average savings of nearly $950 for consumers who finance at credit unions rather than for-profit banks.
Similarly, a consumer who finances $20,000 for a two-year-old car on a four-year term would have monthly payments of $441, on average, at a credit union.
In contrast, the monthly payment would average $452 at a bank as of mid-June 2016. That $11 monthly difference results in an average savings of $516 for the consumer who finances at a credit union rather than a for-profit bank.
Credit unions have recently experienced solid gains in the auto lending arena. That’s good news.
Even better news: Car loans will continue to drive big gains in credit union lending for the foreseeable future.
MIKE SCHENK is CUNA’s vice president of economics and statistics. Contact him at 608-231-4228.