Things may be looking up for automakers in 2010. The Center for Automotive Research is forecasting a 20% increase in vehicle sales for 2010. According to a Bloomberg.com story, the two largest contributors to this increase are "pent-up demand and stronger credit markets." Captive financers and larger banks are now returning to the market. As competition heats up once again, what's in store for credit unions in the New Year?
Market Share Levels Hit Record High
As of October 2009 (the most recent data currently available), credit unions have captured a record-high share of the auto lending market on both a monthly and a year-to-date basis. Credit unions currently hold 20.5% of the auto loan market, an increase of more than 5 percentage points from the same period in 2008.
This is due in large part to credit unions staying active during a period of economic difficulty. As vehicle sales slumped and the economy saw a downturn, many larger banks and captive financers left the market entirely. In fact, according to the Federal Reserve Board's "Senior Loan Officer Opinion Survey" from July of 2008, more than 67% of banks surveyed reported that they were tightening standards for their "Non-Credit Card Consumer Loans." Credit unions capitalized on this trend.
External Market Affects Balance Sheet Growth
Although credit unions grew market share, unfortunately success does not translate into greater loan volume. A 23.9% decline in year-to-date vehicle sales resulted in very little change in loan balances.
Through September, used auto loan balances increased 4.6% from the previous September, up only slightly from the 4.4% growth reported in September 2008. Currently, used auto lending is the only component of the loan portfolio increasing at a faster rate in 2009 than in 2008. However, this growth in used auto lending is off-set by a decline in new auto loan balances.
Through September, new auto loan balances declined 4.2% from the previous year. This slowdown in new auto loan balances resulted in a net increase of just 49 basis points for the overall credit union auto loan portfolio from the previous September.
Building on Member Relationships
Although vehicle sales are forecast to increase by 20% in 2010, that sales volume is still 1.5 million vehicles shy of 2008's sales totals, and more than 5 million vehicles shy of the average sales volume between 2000 and 2007. As sales remain low, and more financial institutions and captive financers return to the market, credit unions may find themselves fighting an uphill battle.
The industry needs to maintain its strong focus on competitive rates and member convenience to capture new business. When other lenders left the market, credit unions took the opportunity to build strong relationships with members who needed vehicle financing. It this these relationships, coupled with record high indirect loan balances and a competitive presence in the market, that will help credit unions maintain their 20%+ market share, even as competition returns to the auto market once again.