With over $166 billion in outstanding balances, auto lending continues to be a core credit union business. However, as credit unions move beyond their “traditional” member base and expand into new markets through indirect and sub-prime lending, the potential risk for credit unions increases.
Although the number of repossessed vehicles declined by six percent in 2004 from 1.6 million to 1.5 million, Manheim’s 2005 Market Report expects future repossession levels to rise. Credit union auto loan balances increased 8.3 percent over the twelve-month period ending June 30, 2005. This means that even if default rates remain steady, repossession volume would increase due to the growing volume of auto loans.
From the member perspective, rising interest rates and inflationary pressures are squeezing household budgets. With the average auto loan term extending from 52.7 to 60.6 months over the past five years, negative equity is increasing for many buyers. This trend makes it more likely for borrowers to walk away from their loans.
Credit unions need to consider these conditions in their remarketing efforts. With greater loss potential in both volume and dollars, credit unions need to focus on optimizing the sales of their repossessed vehicles. For many credit unions, technology is critical to achieving the highest return.
Using Technologies to Gain Efficiencies
According to Dawn Perkins, r epossession specialist at CommunityAmerica Credit Union ($1.5 billion in Lenexa, MO), having online capabilities to manage the remarketing process has been a lifesaver. Traditionally, Perkins managed the portfolio manually, spending hours faxing documents and tracking down cars. Employing the new platform allows her to approve the car to start auction, send reports, view damage, monitor sales and much more with just a click.
As the sole repossession manager for a credit union with $304 million in total auto loans that currently has 40 repossessed vehicles in several different states, the ability to manage every aspect of the process online has not only improved her efficiency, but also resulted in quicker sales of the vehicles. Perkins is able to resell almost all of the cars in less than 70 days from the initial notice date. This is critical as the cost for the credit union increases while the value of the car decreases with each day.