Opportunities for Credit Unions in Changing Automotive Environment

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The opportunity and risk mitigation tools credit unions must consider in an ever-changing automotive market.  

With economic conditions continuing to shift, no one can truly predict what the economy will look like 12 months from now. There’s reason to believe credit unions will fare better than large banks — especially when it comes to automotive financing. One can look to recent history and the Great Recession in 2008 for proof of credit unions’ resiliency. From 2008 through 2012, 481 FDIC-insured banks were liquidated or merged with other institutions. But credit unions experienced just 136involuntary liquidations or mergers.   

In addition to being not-for-profit entities, credit unions prioritize members and personalized services, unlike banks, which must balance customer service and experience with profits. At the height of the Great Recession, many people turned to credit unions after larger banks and other for-profit lenders cut off access to capital. Rather than scale back financing options, credit unions were able to increase their loan portfolios, provide critical capital, and protect and safeguard their assets.   

Credit unions are once again proving their ability to deliver competitive and accessible automotive financing amid fickle market conditions. Despite demand outpacing supply and cars reaching record unaffordability, Experian’s State of the Automotive Finance Market found credit unions experienced their highest total share of the market in five years.  

There’s little indication that today’s economic outlook will mimic the ferocity of what we experienced in 2008. But, regardless of the severity, credit unions can thrive in the face of impending economic downturns by continuing to prioritize their members while mitigating risk and ensuring ROA through automated tools and solutions.  

A Growing Market Share Opportunity  

Today, credit unions have a unique opportunity to make vehicle ownership a reality for those who want and need it while managing to weather economic headwinds and mitigate their risk. Until this year, credit unions’ share of the automotive finance market had been consistently declining, while captives experienced regular growth. But in the first quarter, credit unions saw a noticeable and surprising boost over their counterparts.  

According to Experian, credit unions’ total market share reached 22.06% in the first quarter, up from 18.55% in the first quarter of 2021. Captive lenders, on the other hand, saw their share of the market decrease to 25.38%, from 29.75% in the first quarter of 2021, marking their first decline after growing from 25.94% during the first quarter of 2018 to 26.06% in the first quarter of 2019 and then to 26.15% in the first quarter of 2020. 

Another critical component for credit unions to keep in mind while taking advantage of this opening in the market is the increasing cost of vehicle ownership. Inflated vehicle value has been another byproduct of the industry’s inventory shortage, which was reflected in year-over-year increases for average loan amounts and monthly payments. Experian reported that in the first quarter, the average new loan amount increased by $4,155 from the same time in 2021, reaching a high of $39,540. This growth caused monthly payments for new vehicles to spike from $577 to $648 year-over-year. And those looking to save money by purchasing a used car aren’t seeing much relief either. The average used vehicle loan amount saw an even more significant surge, going up to $27,945 in the first quarter of 2022 from $22,378 during the same time in 2021.  

These increased costs aren’t expected to go away any time soon. New car inventories aren’t expected to bounce back to pre-pandemic levels until at least next year, keeping the used car market more crowded and competitive. Given these hikes in demand and payments, people are looking to credit unions for competitive interest rates and to facilitate vehicle ownership.  

So, how can credit unions seize this opportunity in vehicle financing without incurring increased risk? Adopting loan automation tools is key to navigating a fluctuating environment. Not only can these systems streamline the loan origination process, but they can also help borrowers save money while protecting loan portfolios.  

Increased Originations Without Increased Risk  

When considering adopting loan origination platforms, credit unions should identify tools that maximize lending efficiency, empower great member experience, appeal to new groups of potential members, and mitigate risk for both the institution and the borrower. 

Tools like Open Lending’s Lenders Protection™ are critical to credit unions when balancing increased demand for auto loans with an unpredictable market. The Lenders Protection™ program is an auto lending enablement platform that allows credit unions to model their specific overhead and funding costs and set a target ROA for their insured portfolio.  

By delivering advanced and configurable analytics, our platform allows credit unions to make data-backed credit decisions. As a result, credit unions can create a profitable auto loan portfolio with carefully managed pricing and risk characteristics — all of which are tailored to the institution’s target ROA and specific costs.  

Additionally, Lenders Protection™ enables sophisticated analytics and provides credit unions the data and confidence they need to extend loan opportunities to qualified near-prime and non-prime applicants — meeting the needs of underserved borrowers while mitigating risk at the same time. Recently, we added nine months to our previous maximum term to further enable credit unions to support their members. 

This decision is in response to the changing auto lending landscape and that more than one-third of applications requested more than 72 months in 2021. With Open Lending, credit unions can now offer 84-month terms for new and used vehicles up to four years old with less than 60,000 miles. Our clients also now have the power to provide a higher payment-to-income ratio for indirect lending, which will increase full approvals and higher funding ratios despite fewer counter offers. Equally important is that Lenders Protection ™ allows credit unions to increase access to auto loans, expanding their membership and empowering more people to achieve vehicle ownership.  

At Open Lending, we consider ourselves your partner in the constantly changing lending landscape. We designed the Lenders Protection™ program to allow financial institutions to capture more loans without generating new business by analyzing existing applications already being processed. In other words: increased, informed origination without increased risk. And these new benefits further bolster this mission.  

As we look to the end of 2022 and the new year, credit unions can rest assured that their mission and dedication to their memberships will continue to be appreciated. Credit unions play an invaluable role in communities and providing opportunities to those who would otherwise be turned away from larger banks. By implementing solutions like Lenders Protection™, credit unions can continue providing the capital their members need while protecting themselves from unnecessary risk, thereby continuing to honor their mission to their communities. People depend on credit unions for their resiliency, reliability, and consistency — Open Lending ensures you continue delivering on these promises.


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