Auto loans to lead growth
Average age of cars on the road is at an all-time high, suggesting healthy underlying demand.
CUNA economists believe credit union loan growth will remain strong but begin to reflect smaller increases going forward. In the aggregate, we see credit union loans increasing 9.5% this year and 8% in 2019.
Auto loans will continue to lead the way. The average age of cars on the road is at an all-time high of 11.6 years, which suggests healthy underlying demand going forward. Credit union auto loan growth has been a consistent standout throughout the current recovery.
Federal Reserve and NCUA data reveal that new- and used-auto loans outstanding accounted for 31.6% of all credit union loans at midyear 2018. That’s up from 30.3% at yearend 2017 and 22.4% in 2007.
The consultancy IHS Markit projects full-year 2018 new-auto and light truck sales of 17.2 million units, a 1.3% decline from 2017 with continued softening going forward. The firm predicts overall sales will decline 0.9% in 2019.
Wards Intelligence has a similar forecast, with U.S. sales declining 2.1% in 2018 and 1% in 2019.
The dollar amount of credit union new-auto loans outstanding increased 13.1% in 2017 and 11.7% in the year ended June 2018. That tracks with the HIS Markit view of modestly softer sales trends.
The outlook for used-auto lending also looks favorable. Credit union used-auto loans outstanding increased 10.2% in 2017 and 9.9% in the year ended June 2018. Moody’s Analytics projects used-car prices to stabilize over the next several years.
That, in combination with rising interest rates and tighter credit standards, should have more consumers seriously considering used cars throughout our forecast horizon. Expectations of growth remaining near double-digit levels seem reasonable in the current environment.
Going forward—into the 2020s—most experts predict more obvious slowing in the auto business. That’s when many expect the effects of society’s mobility transformation such as ride-sharing, car-sharing, subscription services, and autonomous vehicles to become more pronounced.
Those changes should be slow at first, but gain momentum throughout the next decade.
Berylls Strategy Advisors sees car sale declines over the next decade averaging 2% per year.
MIKE SCHENK is CUNA’s deputy chief advocacy officer for policy analysis and chief economist.