The Good, the Bad, and the Ugly: Auto Lending Trends in the Third Quarter

In what has been a difficult year for credit union auto lending, most of the trends have been bad and ugly but dig a little deeper and there is good news to be found.


Picking up any newspaper these days will give you a sense of the difficulty facing the automotive market. From high mid-summer oil prices and bailouts to UAW strikes and slumping sales, 2008 has been a difficult year for auto manufacturers. Yet despite some of these trends that were “bad” and even “ugly”, there was still “good” news for credit unions in the third quarter.

Declining Sales Contribute to Declining Auto Loan Balances

Let’s begin with the “ugly” to get that out of the way: High fuel prices during the crucial summer months and the impact of the credit crunch have played a tangible role in the declining demand for new vehicles in 2008. Through November total light vehicle sales were down 16.3% on a year-to-date basis from the same period one year ago. In fact, we are currently on pace to see the slowest year for vehicle sales in 15 years. As nearly all auto manufacturers have posted a sales decline in 2008, the market for vehicle financing continues to feel the impact.

With fewer vehicles being sold, there are fewer individuals who find themselves looking for vehicle financing, and this has caused many lenders to leave the automotive lending market completely. While most credit unions remain active automotive lenders, the market has affected their ability to increase balances, leading us to our “bad” trends. As of the third quarter, new auto loan balances at credit unions had fallen 7.3% from the previous year. Used auto lending has remained viable, up 3.5%, likely due to the lower average cost of a used vehicle. This increase in used vehicle loans however is not increasing at a fast enough pace to offset the declining new auto loan balances, resulting in a net decline of 1.35% for total auto loan balances at credit unions.

These trends become even more interesting when viewed on a quarterly basis. Early in 2007, new auto lending was actually the larger component of the credit union auto loan portfolio compared to used auto lending. Trends over the last 18 months have reversed the two components, which are now separated by a gap of nearly $12 billion.

Market Share Rises as Other Lenders Leave the Market

Yet, even as total balances decline, their decline is not nearly as steep as the decline in vehicle sales. This data supports the auto lending market share trends that have been reported during 2008. Credit unions were initially hit hard by declining auto sales, as credit union market share in the automotive lending market fell to 12.9% in March, a record low since this data has been collected.

However, as other lenders began to flee the automotive market, and credit unions remained a consistent local alternative for financing, this trend picked up at an impressive rate for our “good” third quarter trends. From lows in March, credit unions have captured additional market share in leaps and bounds each month. In October, the most current data available, credit unions captured 19.5% of the auto lending market. This number is impressive not solely for the fact that it marks highs that credit unions have not seen since mid-2005, but also because of the large consecutive monthly increases, with credit unions capturing an average of 94 additional basis points of market share each month during that period.




Jan. 5, 2009


  • Good article on Auto Lending. Hopefully the webinar will address not only the concerns about lending when nobody seems to be buying cars , but the opportunity for CU's to protect thier portfolios from the troubles borrowers are facing. A solid portfolio means the ability to continue solid growth.
    Kevin Fox
  • I agree with you Kevin. Loan quality is still paramount. The good news however, is that delinquency and charge-off rates have remained at manageable levels during this growth. This goes a long way to show that credit unions are not increasing market share by simply going after the loans that did not meet the quality standards of other lenders. That is certainly an issue we will be touching on during the webinar, especially as it relates to dealer relationships and underwriting standards.
    Nick Connors