Credit unions have found success in the auto lending market in 2009, despite the difficulties the sector has experienced over the past year. Despite declining vehicle sales in the first quarter, credit unions have reported their first annual increase in auto loan balances since September of 2007.
Auto loan balances at the nation's credit unions through March totaled $177.5 billion, representing 31.0% of the total loan portfolio. This marks an increase of 72 basis points from the $176.3 billion in outstanding auto loans in the previous March. This increase was due mostly to credit union used auto lending, which was up 5.8% over the past twelve months. This growth in used auto lending managed to offset the declines credit unions saw in the new auto loan space. New auto loan balances fell 4.7% during the year, down to $81.3 billion in March. Although the increase in used balances helped credit unions drive a net increase in auto loan balances during the year, auto loan balances have fallen 39 basis points from levels reported at the end of 2008.
External Market Impacts Auto Lending Metrics
Slumping vehicle sales trends, coupled with the negative financial impact the economy has had on most consumers, has led to longer vehicle loan terms. However, CUDL is reporting that those trends may be seeing a shift back towards shorter terms. In 2008, the most common term for a loan financed by a credit union on the CUDL platform was 72 months. In the first quarter of 2009, the most common loan term has shifted to 60 months. However, even with this shift experienced in the first quarter, the distribution of loan terms still favors longer term loans.
This distribution, coupled with the increased prevalence of used auto loans, has also caused a decline in the average balance of an automotive loan. In the first quarter of 2009, the average auto loan balance stood at $11,493. This figure marks another in a series of declines for this metric, which has fallen over the last three consecutive years, down from highs of $11,922 in March of 2006. Despite these declines in average balances, and struggling total balances, credit union auto loan penetration has remained strong. In March, credit union auto loan penetration was 17.1%. This figure, up from the 16.9% penetration credit unions reported in 2008, marks the first increase in penetration since 2006 when credit unions saw a record high penetration of 17.3%.
Indirect Auto Lending Also Increase in March
Accompanying the positive news for penetration, total auto loan balances, and loan terms, is positive news for credit unions on the indirect side of auto lending. Through the first quarter of 2009, credit unions reported $76.3 billion in outstanding indirect loan balances. These levels represent an increase of 9.1% of from the $70.0 billion in indirect balances credit unions reported in March of 2008.
As the growth in indirect balances has continued to outpace the growth in the total loan balances, indirect lending continues to increase as a percentage of the credit union loan portfolio. In the first quarter, indirect loans represented 13.3% of the overall portfolio, and 43.0% of the total auto loan portfolio. However, with these increases it should be noted that indirect balances are not broken out in the call report, and at this time we cannot determine what percentage of indirect loan balances are comprised by indirect auto loans, and what percentage is comprised by indirect mortgage lending. Although only 294 credit unions offered indirect mortgages in March, this service has become more prevalent over the past year, and may represent a portion of the growth experienced by indirect loan balances over the past year.
Managing Risk While Coming to the Aid of Members in Need
In addition to increasing balances, credit unions have also notched increases in market share, and are coming to the aid of a greater number of members that need financing during this difficult time. As credit unions look to serve an expanding membership base, many credit unions are adjusting their credit criteria to make financing available to a wider range of individuals than ever before. But with these relaxed credit criteria also comes a potential decline in asset quality. Join us on July 22nd for our upcoming webinar Driving Auto Loan Growth While Maintaining Portfolio Quality to hear from credit unions that are using proper risk management strategies to provide financing to members in need, without sacrificing the quality of their auto loan portfolio.