U.S. credit unions now face more competition than ever for auto
loans. Although vehicle loans still make up about 39% of the average
credit union's lending portfolio, fewer loans are now being funded
for new vehicles. Many credit unions have turned to indirect lending
as a way of maintaining market share by leveraging auto dealers'
highly influential role in the loan selection process.
Seventy eight percent of credit unions responding to a recent Callahan
& Associates survey indicated that they either currently use
indirect lending, or expect to launch a program by the end of 2003.
This represents a 7% increase compared to mid-year 2002, when two-thirds
of credit unions responding to a similar Callahan's survey said
that they participated in indirect lending.
The increase is not unexpected, given both the intense level of
competition for loans at the dealership and the excess liquidity
present in the market. Participation will probably continue to increase
as long as one or both of these factors are present.