Formula Definition: Auto Loan Penetration
Auto loans are the primary source of income for most credit unions. Auto loans can be highly profitable, have broad market appeal, and, when processed properly, are a productive use of operational resources. However, auto loans can carry additional risk, particularly if the credit union has not established good risk control procedures.
Credit unions that succeed in auto lending generally have the the following characteristics: some sort of relationship with auto dealerships either through buying programs or indirect lending programs, solid risk management policies and procedures, several delivery channels for loans, and effective marketing and sales programs.
Kitsap is in the top 10% of this peer group, which demonstrates it is highly effective at capturing members’ auto loan business. This indicates Kitsap has developed products and services for new and used auto loans that are competitive in today’s marketplace. Rates, technology, and service might all be a factor in this success. Kitsap will need to monitor loan losses regularly to assure its underwriting policies are effective.
Taking a closer look, one sees Kitsap has 28.2% auto loan penetration. Kitsap works almost exclusively in indirect lending (95% of its auto loans are indirect loans), and it has strong asset quality. The credit union has an indirect loan delinquency half that of its standard asset-based peer group. Credit unions $500M-$1B post reportable indirect loan delinquency of 0.91% while Kitsap's rate at June 2010 was 0.41%.