Bob Child
Origence Chief Operating Officer Bob Child

Auto lending slows after massive 2022

Inflation and rising interest rates impact demand for auto loans.

June 5, 2023

The auto lending industry’s rollercoaster ride hasn’t stopped since the coronavirus pandemic struck in 2020.

Credit unions were on top in 2022. Origence, a CUNA associate business member at the premier level, funded $79 billion in auto loans in 2022.

“It was a record year,” says Origence Chief Operating Officer Bob Child. “Everything was going credit unions’ way.”

The ride began to descend in the fourth quarter of 2022, as liquidity pressures increased, loan-to-share ratios peaked, and interest rates and inflation increased. January and February 2023 saw higher loan volumes than those months the previous year.

“March started to get really interesting. Credit unions were maxed out, the Federal Reserve put in another interest rate hike, Silicon Valley Bank collapsed, and credit union auto lending came to a pretty massive slowdown,” Child says. “Suddenly, there was a heightened focus on liquidity. Liquidity became a central theme for the financial world, so it's understandable that credit unions started pulling back in lending.”

The number of new auto loan applications ticked back up in April. Through the first quarter of 2023, auto loan applications were up 4.3% year to date.

“Interest rates have gone up over 300% since the same time last year, and the price of cars are at an all-time high, too,” Child says, noting that the average new car costs about $50,000.

Manufactures have started to increase vehicle incentives and offer low-rate captive financing to entice consumers, he says. Across the board, lenders are tightening their credit guidelines to prepare for a possible recession.

The pre-pandemic industry norm for seasonally adjusted sales for new cars was about 16.5 million. Last year, new-vehicle sales totaled 13.9 million, and credit unions significantly increased their auto-loan market share.

Industry economists expect 14.2 new-car sales in 2023, Child says.

In the first quarter of 2023, credit unions financed 16% fewer new cars than they did in the first quarter of 2022.

“Used-car fundings have been pretty much flat year over year. I anticipate we’ll see lower used-cars sales in Q2, and credit union financing will probably come down another 5%,” Child says, adding that he anticipates an uptick in the third and fourth quarters as liquidity pressures ease somewhat.