Auto loans produce consistent yields, have a broad market appeal, and can be highly profitable. As such, they are an efficient use of credit unions' operational resources. The credit union auto loan market share is larger than that of other lending markets, and for many credit unions, auto loans are a primary source of income.
Texas credit unions are posting stronger auto lending numbers than their national peers. In 2010, the auto loan penetration rate of Texas credit unions was 20.9% compared to a penetration rate of 16.4% for credit unions nationally. US credit unions posted an average outstanding new auto loan balance of $8.5 million in 2010; Texas credit unions more than doubled that at $19.7 million. According to Experian Automotive, Texas credit unions are capturing one of the largest percentages of new auto market share, 17.2%, in the country. Credit unions — including those in Texas — that have generated strong yields from new auto loans have used competitive rates and targeted marketing to secure new auto market share from captive finance companies and other financial institutions.
Source: Callahan & Associates' CUAnalyzer
Although they are a significant portion of the credit union balance sheet, auto loans do not come without risk, which is why credit unions must have solid risk control procedures. Auto loans do not necessarily build strong member relationships, and the market place is competitive. Successful auto lending credit unions generally have established dealer relationships (either through buying programs or indirect lending programs), solid risk management policies and procedures, several lending delivery channels, and an effective marketing and sales program.