Credit unions registered record high return on assets (ROA) in the first half of 2021. Reducing loss provisions set aside during the start of the pandemic, mortgage sales, and Paycheck Protection Program loans contributed to this performance.
CUNA expects ROA to decline as interest margins fall, mortgage originations decrease, and auto industry supply challenges continue.
As the second-largest loan type following mortgages, auto loans represent about a third of credit unions’ overall loan portfolio. Lost revenue for the auto industry due to supply chain disruptions also implies lost opportunity for credit unions to provide financing. This clearly has an impact on earnings.
Market share
Credit unions’ auto-loan market share during the second quarter of 2021 was 18% (24% for used-auto loans and 11% for new-auto loans), according to Experian. That’s down from nearly 23% in 2018.
Captive finance companies have dominated new-vehicle financing. These companies, which are wholly owned by auto manufacturers, provided 55% of new-car loans during the first half of 2021.
Online marketplaces such as Carvana present a growing challenge for credit unions in the used-car sector. Establishing partnerships to make use of third-party financing options on these platforms will help address the challenge.
These digital spaces provide experiences that are attractive to younger consumers, who are becoming dominant buyers in the auto market.
A report from the New York Federal Reserve shows that 62% of auto loans originated during the second quarter of 2021 went to consumers under age 49. Those under age 39 account for more than 60% of these loans.
The average age of a credit union member, however, has increased from 44 to 51 years over the last 20 years. Credit unions should address this demographic gap to increase their market share.
Improving conditions for the economy and the auto industry in 2022 will present better conditions for credit union auto lending. But credit unions need to address challenges in the marketplace to maintain and grow their auto-loan share.
DAWIT KEBEDE is senior economist for Credit Union National Association. Contact him at 608-231-5791 or at dkebede@cuna.coop.
Credit Union Magazine’s Fall 2023 issue examines how artificial intelligence is shaping marketing, strategies to improve cyber hygiene and overall cybersecurity, the need to employ risk management to address inflation and its impacts, new approaches to board recruiting, and NCUA’s top supervisory priorities.
