Credit union auto lending hit the skids in May. Refis offer hope for fall.

Auto lending was one of the bright spots for credit unions early in the first quarter of 2023, but new data suggests that making those loans was more of a struggle in the spring.

Credit union new-auto loan balances rose only 0.02% in May, a big drop compared to the 1.7% gain reported in May 2022, according to a new report from TruStage (formerly CUNA Mutual Group), an insurance and financial services company that monitors the credit union industry.

Higher interest rates and increased competitive pressure from captive finance companies have been the primary reasons for the dip in auto lending at credit unions, TruStage said. 

At the end of the first quarter of 2023, auto loans at credit unions totaled $493 billion, an 18% year-over-year increase, according to the National Credit Union Administration. The NCUA will release its comprehensive second-quarter data for the entire industry in early September.

Salal Credit Union in Seattle is one of the credit unions that saw its auto lending slow down.

The $1.3 billion-asset credit union had slightly more than $30.8 million in total auto loans on its books at the end of the second quarter, a 16% decrease compared to a year earlier, according to NCUA call report data.

Russell Rosendal, Salal's president and CEO, said in an interview that the credit union's decline in its auto-lending business is attributable to it not pricing down with some local competitors, including other credit unions.  

"We believe there will be a better time in the future to offer members better pricing," Rosendal said. "We're seeing members more interested in building up their savings and we think that is in our members' best interest today."

Credit unions are also seeing increased competition from large banks and captive finance companies. 

JPMorgan Chase, Wells Fargo and TD Bank recently said they are bullish on auto while some other large banks and lenders have indicated a likely pullback in vehicle lending this year.

Jeff Voss, managing partner for consultancy Artisan Advisors, said competing with banks and captive lenders will be tough. 

"While credit unions have gained market share in the last year, banks and captive lenders may try to regain their share by offering more competitive rates, incentives and promotions," he said. "Credit unions need to maintain their value proposition and member loyalty to stay ahead of the competition."

Credit unions could benefit from an expected auto refinance boom in the second half of 2023, Voss said.

As consumers face increased payments due to higher loan sizes and interest rates, they may look for ways to save money by refinancing their loans. Credit unions that are first to market in the auto refinance space can offer members an opportunity to save by lowering their monthly payments, Voss said. 

Travis Credit Union CEO Kevin Miller agrees.

The $4.8 billion-asset credit union in Vacaville, California, had more than $1.7 billion in total auto loans on its books at the end of the second quarter, a 17% increase compared to a year earlier. 

Miller said the average vehicle payment is hovering around $600 for its members — substantially below the national average monthly loan payment of $725.

"We appropriately price for risk and return, and our loan pricing has been competitive," Miller said. "We also reward members who are investing in unique hybrid and electric vehicles with unique program offers."

Credit unions

Recession fears overshadow credit unions' strength in auto loans

June 26, 2023 3:58 PM

The $607 million-asset PremierOne Credit Union in San Jose, California, had more than $82 million in total auto loans on its books at the end of the second quarter, a 34% increase compared to a year earlier. 

Vice president of lending Chris Caputo said rising interest rates as well as competitive pressure from captive companies are making for a challenging environment this year. 

"But we've gotten some results in the new-car arena through our 96-month term on new vehicle financing, and our constant outreach with our dealer partners," Caputo said. "I do see opportunities in the auto lending channel as dealer inventories seemed to have normalized, and unemployment remains at record lows."

And while used-car inventories recently reached a year-to-date high, the used-vehicle market saw prices and days' supply decrease as sales rose for the third consecutive month. 

"We will need to see the rates come back lower … so we can see a normalization and a pickup in refinancing. However, this is not expected to change until early 2024," Miller said.