Participation in Alternative Channels Increases as Auto Sales Slow

Vehicle sales slipped in 2007 leading to a slowdown in CU auto lending. As lending slowed, a larger number of CUs implemented indirect lending programs.


Total credit union auto lending was down slightly in 2007, with total outstanding balances falling 15 basis points during the year to $179.4 billion. One of the hurdles for credit unions to overcome during the year was the decline in total vehicle sales. New vehicle sales in 2007 fell 2.5% from their totals the year before. This trend has continued into 2008 with year-to-date vehicle sales down 5.4% as of February and J.D. Power & Associates adjusting their 2008 forecast to 14.95 million, the lowest level in 13 years. With a turnaround in vehicle sales becoming more unlikely in the near future, credit unions are reevaluating their auto loan growth strategies.

More Credit Unions Offer Indirect Lending to Drive Growth
As auto lending has slowed, so too has indirect lending. Indirect loans accounted for $70.5B of the total loan portfolio. This balance, similar to total auto loans, has fallen slightly since the end of 2006, down 50 basis points during 2007. Despite this slowdown, a higher percentage of credit unions are turning to indirect lending as a catalyst for new auto loan growth.

64.5% of credit unions with assets over $50 million reported outstanding indirect loans in 2007. This number has risen steadily over the past five years, up from a value of 47% in 2003. As vehicle sales slow, strong dealer relationships become even more important for credit unions looking to capture a larger percentage of the declining number of vehicle sales. A well-managed dealer relationship can also help credit unions reinforce their loan quality, despite a rise in overall loan delinquency.

By offering this additional service, credit union members receive an added convenience, making it more likely they will turn to their credit union to finance the vehicle. For credit unions however, the benefits can be two-fold. On top of the added convenience you offer to your current members, this added exposure has the potential to drive new members to the credit union who are in various stages of the auto-buying process and are looking to finance their purchase. This new channel for membership has the potential to impact multiple facets of the credit union balance sheet, however the challenge for credit unions lies in their ability to convert these new relationships into meaningful ones with a greater depth of products.




March 24, 2008


  • You failed to mention anything about how much income the credit union will loose as a result of loosing credit life, credit disability, warranty & GAP and any other income producing product that the credit union will be giving up to the dealership. How about an article on this subject. Not to mention the extra cost in the collection department.
    Debbie Dronet