Total annualized auto sales as of June 2006 were 16.1 million units down from 16.6 million units from the 1st quarter and down from 17.5 million units this time last year. This loss carried over to the Big 3 in the auto lending world despite their initiatives of 0% financing and $0 down, employee pricing, and other manufacturer and dealer incentives. The Big 3 are not experiencing increased returns on these initiatives.
US Auto Sales versus Big 3 Auto Sales
Consumers Look Beyond the Dollar Signs
A recent study conducted by Consumer Reports* found that buyers are looking for more than dealer discounts and flashy financing when purchasing their cars. Twenty-seven percent of the respondents say fuel efficiency is most important in their decision making process, most likely due to the increasing awareness of consistently higher gas prices. Reliability (25%), purchase price (14%), and safety features (12%) of the car all ranked above dealer incentives (5%).
According to the study, 25% of respondents claimed that only dealer and manufacturer discounts over $5,000 would have an effect on their final purchase. Such incentives have fallen from an average of $4,712 in June 2005 to $3,253 in June 2006. Manufacturers are discovering the need for new initiatives beyond those currently in place.
Credit Union Summer Performance
As for the credit union community, auto lending market share has backtracked from 19.3% in July 2005 to 15.3% in July 2006. Like the Big 3 and industry as a whole, credit unions need to find new tactics to entice their members and potential members to finance with them as opposed to manufacturers.
The fall in market share is not cause for concern quite yet. To compete with the dealer and manufacturer incentives, credit unions must be open to a wide variety of potential financing opportunities. Indirect lending is one avenue to reach members otherwise unreachable at the point of sale. This form of sale can allow credit unions to recapture their members and be sure they receive the best financing possible. Although a positive for some credit unions, many are concerned with potential losses.
Capital Community Credit Union ($280 million in Grand Rapids, MI) is one credit union that has focused on growing the auto loan portfolio. One year ago, Capital Community partnered with a third party to protect and grow their dealer relationships. As a result, Capital Community has found growth in both their new and used car loans. New car loan growth is up 19% to $9.4 million and used car loan growth is up 6% to $53 million. In the past year, credit unions as a whole have seen a 15% increase in new auto loan growth and a 1.5% increase in used car loan growth. Capital Community is currently performing above average in both loan growth areas and it has a positive outlook for the program.
*source: NADA Headlines
To learn more about second quarter results and what your fellow credit unions are doing to help their members finance cars successfully, join us on Tuesday, September 26th to learn “Best Practices in Subprime Indirect Lending”.