The auto industry is changing. It is predicted that by 2035, autonomous vehicles (AVs) will make private car ownership a thing of the past.
There will be positive effects from the adoption of AVs, including increased safety, convenience, and more people with access to affordable transportation. But there may also be negative implications.
UBS predicts private car ownership will drop by 70%, decimating the auto industry as we know it and making the future of auto lending uncertain.
We may be a long way off before we can hop in an AV, tell it where to go, and take a nap. But as a car owner that has a beta version of full self-driving, I see firsthand what the future of AVs looks like and it may be closer than we think.
Waymo has a robotaxi service in cities right now. And most new cars sold today have driver assistance features.
While the time horizon of AVs is up for debate, the question of if it will happen is not.
Credit union implications
If AVs are proven to be safe and reliable there may be a shift from private car ownership to ride sharing or cars-as-a-service model.
Let’s face it, cars are expensive. According to AAA, owning a car costs around $10,049 per year or 93 cents per mile.
If ride sharing becomes the choice option for consumers it will impact credit unions’ auto loan portfolios in a couple different ways.
Declining loan volume, rising defaults
If AVs takes hold, borrowers will no longer buy cars. Instead they will sign up for subscriptions to ride-sharing services.
This will lead to fewer auto loan originations. Also, your typical two-car family may change to a one-car or no-car family, also reducing auto loan volume.
Today, borrowers depend on cars to get them to their job to earn a living. If borrowers get into financial trouble, they are likely to do whatever is necessary to keep their car.
In the future when AVs are widely available, that same borrower may be more likely to default on their loan because they have an alternative, cost-efficient to get to work.
Having a cheap ride-share alternative may result in more auto loan defaults.
Plus, as consumers move away from private car ownership, the value of cars will go down. There will be less demand for cars as more people move to the more affordable car-as-a-service option.
Car manufacturers will adapt and either produce their own AVs or make fewer cars to match the lower demand. But that will take time at car values’ expense.
What should credit unions do?
Be prepared. Understanding that this disruption could happen is half the battle. Having it on your radar and keeping up with industry news will allow your credit union to prepare.
The change to AVs won’t happen overnight, but it is smart to start thinking about the change now. Educate your team about the implications of a smaller auto loan portfolio and what that means to your bottom line.
Pivot. Think about alternative products to offset the income loss from a declining auto loan portfolio. Offer consumer loans for vehicles that won’t be impacted by AVs, such as recreational vehicles, boats, motorcycles, and airplanes.
Offer fleet car loan services to businesses that provide ride-share services. Explore alternative consumer financing, such as solar panel loans, green loans, and loans for electric vehicle charging.
The future is quickly approaching. Technology is advancing and improving our daily lives at a record pace.
Autonomous driving is coming and will affect auto lending. By taking steps now to prepare and pivot you’ll set your credit union up to successfully meet the challenges.
Credit Union Magazine’s Spring 2023 issue features the 2023 Credit Union Heroes and examines CUNA-League advocacy priorities, board leadership, the impact of financial well-being efforts, fee-related compliance issues, predictions for the year ahead, and more.
