0% Financing Programs Slow Rate of Credit Union New Auto Loan Growth

Vehicle sales have been stronger than expected year-to-date, and surprisingly resilient despite the war and high gas prices in March. Much of the auto industry's recent growth has been attributed to manufacturers' aggressive financing and rebate promotions. While these offers have been effective in maintaining consumer spending levels, they have presented a real competitive challenge for credit unions that depend on auto lending revenues. Auto loans currently make up 39% of the credit union loan portfolio.

 
 

Vehicle sales have been stronger than expected year-to-date, and surprisingly resilient despite the war and high gas prices in March. Much of the auto industry's recent growth has been attributed to manufacturers' aggressive financing and rebate promotions. While these offers have been effective in maintaining consumer spending levels, they have presented a real competitive challenge for credit unions that depend on auto lending revenues. Auto loans currently make up 39% of the credit union loan portfolio.

Q1 2003 financial data gathered through Callahan's First Look program suggests that total auto loans have increased by about 7% over Q1 2002, although used auto loans are growing four times as fast as new loans. Of the 436 credit unions that have contributed to First Look so far, 2002 comparison data was available for 190 credit unions. Among this group, new auto loans have grown only 2.7% over Q1 2002 levels, compared to 12.1% for used autos.

0% Finance Promotions have made the auto lending market more competitive than ever.

Tell us how your credit union has been managing in this environment.

Participate in Callahan's nationwide survey of credit union auto lending practices.

How are credit unions competing?

Last year, Callahan & Associates conducted a nationwide survey of credit union lending managers to find out how they were maintaining their share of the auto lending business. We asked credit unions responding to the survey to describe some of the marketing activities they had put in place in order to compete with the 0% finance promotions. In their own words, here are a few of the comments received from respondents:

Educational campaign: rebates vs. 0% financing offers
''Take the Rebate & Run'' promotional offer - lowered rates and cited benefits to taking the rebate and our low financing. Online calculator for members to determine when they are better off with low-rate financing versus the rebate forfeited. Trained originators on cross sell offer: take rebate rather that rate discount. Web site educational information on the negative side of 0% financing

Special rates/terms
Risk-based pricing
Reduced rates on NEW vehicles (24, 36,48 month offers)
Lowered our rates as much as we could
Offered better pricing if they bring more than one product to the credit union
No payments for 90 days

Pre-approval campaigns
Ongoing quarterly pre-approvals
Pre-approval mailer with $25.00 gas card for purchasers

Other
We went after the pre-owned car business
Home equity offers

Callahan's is currently conducting a survey to find how credit unions have been managing their auto lending business this year. Click here for more information.

 

 

 

April 28, 2003


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