Automobile loan originations are still roaring ahead at record highs, subprime share is growing and delinquency rates remain low. Are you taking advantage of these trends to compete more effectively in today’s automotive lending market?
Over 9 million auto loans totaling $183 billion have been originated year-to-date according to data from the latest Equifax National Consumer Credit Trends Report (originations through April 2015, reported as of June 2015). This is a 6% increase in accounts and an 8% increase in balances over the previous year.
2.1 million, or 24% of all auto loans originated this year, were considered subprime with an Equifax risk score below 620. This represents a 9.6% increase over last year, the Consumer Trends Report says.
This origination strength represents a promising line of business that credit unions can use to both grow their auto lending portfolios and attract new members. In addition to robust sales, automobile loan delinquency rates have remained low. The severe delinquency rate (share of balances 60% DPD) in June was 0.91%, down 6 basis points from a year ago. Auto write-offs have increased slightly year over year by 4% to 19.0 bps of balances outstanding.
Credit unions have several key advantages in the auto lending area, including access to new lending opportunities through their existing member-base and proximity to local dealers. Since credit unions may also offer lower interest rates and fees to members than some commercial lenders, your organization may have a distinct advantage.
Here are four practices credit unions should consider to help accelerate their auto lending business.
Analyze your current business. First, examine your current automobile lending business. How many members are turning to your credit union for auto loans? Which dealers are referring business your way? You may find that enhancing member and dealer outreach programs to inform them of your auto lending rates and opportunities can generate more business.
In addition, a detailed analysis of who is winning business may yield more insight. One useful tool is Lost Sales Analysis which gives you insight into which lenders are winning business you lost, as well as the terms they offered, and how the loan is performing. Using a lender’s input file of applications, the service produces an anonymized reporting file of which competitors won the loans, and how that portfolio is performing.
For uncashed contracts, lenders can assess whether the lost opportunity is now showing as delinquent or performing, and if the original offer should have been more competitive or if other adjustments could have been made to win the deal. In addition, such insight helps you provide dealers with insight about the business they’re losing, making you a valuable partner.
Streamline. Remove steps and stipulations from the loan-application process to get cleaner, better deals and happier customers. In many cases, borrowers must provide employment and income verification, which requires them to leave the dealership and return with a pay stub. This interrupts the sales process and could result in lost deals. Instead, use third-party income and employment verification to streamline the process and seal your deals faster. To learn more, check out this infographic.
Create a preferred dealer program. As a lender with an audience of potential car buyers, you are in a prime position to establish valuable reciprocal relationships with area dealerships. Your organization represents a gold mine of prequalified, interested vehicle prospects. And when they come to the dealership through your referral, they cost a fraction of those customers attracted by expensive and untargeted traditional media such as TV, radio or newspapers. At the same time, they represent a potential stream of new auto loan business. Cultivating that relationship by creating a preferred dealer program can benefit both you and the dealer.
To establish a preferred dealer program, start with dealers who are already referring business to your credit union. Typically, bigger dealers represent more opportunity, as they may refer more business, but also consider which dealers may be the best fit for your target market. First, create a list of pre-screened prospects that qualify for vehicle loans. Then, work with your preferred dealer to send a letter to members letting them know they’re pre-approved for a new vehicle loan and that they should visit the preferred dealership to redeem the special financing offer. In addition to direct mail, consider how you can promote this pre-approved offer through digital marketing channels, such as email, targeted display ads or online auto shopping sites, which may prove very cost effective.
Offer refinancing options. Many of your customers might qualify to refinance their existing automobile loans. Doing so may allow them to get a better interest rate and lower their monthly payment — two savvy financial moves that can win new business. Identify all of the customers who have a trade line with you, including a mortgage, personal loan, credit card or other account, and verify that they also have an open auto loan with another lender. Using information in the trade line, such as payment history and interest rate, estimate the interest rate on the open auto loan.
Auto lending is a growing business line that has a strong track record of both demand and portfolio performance. By fine-tuning your sales approach and creating preferred dealer and refinancing programs, you can help accelerate your auto loan business and win new members. Review the Equifax webinar, "How Credit Unions Can Compete More Effectively in Today’s Automotive Lending Market," or contact us here for more information.
Data shared in this article is from the Equifax, Inc. U.S. National Consumer Credit Trends Report, June 2015
Sr. Director, Product Marketing Leader
Equifax Automotive Services
Art comes to Equifax with 14 years of automotive marketing experience at Cox Automotive, where he served in various marketing roles supporting auto dealers, OEMs and related industry partners. Among his contributions, Art managed customer and market insights which identified new product opportunities and drove market growth strategies at AutoTrader and other Cox businesses, contributing to tremendous revenue growth for the company. Art brings a wealth of industry knowledge focused on providing innovative solutions that will help our customers grow revenue and evolve in the dynamic automotive landscape. Art oversees product marketing for Equifax Automotive Services.