The Missing $30 Billion

Even though the year’s barely half over, it’s clear that gas prices will be a key factor in credit union growth, or lack thereof, in 2006.

 
 

The price of a gallon of unleaded gas has risen 36% already since the start of the year. According to Bloomberg, the average price stands at $3.04.

The American Automobile Association (www.aaa.com) estimates annual per-vehicle gasoline use at 550 gallons. If gas prices hold at current levels through the end of the year—and nothing suggests that they are poised to fall significantly—then the typical consumer will pay about $425 more for gas this year compared to 2005. And we’ve all heard—or personally experienced—the stories of people who are paying hundreds of dollars extra per month because of long commutes or gas-thirsty vehicles.

What’s at Stake

Now let’s say that four out of five credit union members has a car. If each of those members is paying an average $425 extra for gas this year, the collective hit to the credit union industry is a stunning $30 billion.

That’s $30 billion of expense—money that can’t be saved, invested, or used to finance healthy borrowing. Thirty billion that’s gone forever once the tank is empty.

This dynamic is beginning to play out in credit union results. First Look data for the second quarter of 2006 reveals a deceleration in share growth. In the second quarter of 2005, First Look participants reported average share growth of 7.3%. In the second quarter of 2006, share growth slowed to 6.3%. (First Look participants tend to post higher growth rates than credit unions as a whole.)

Opportunity for Credit Unions?

In fact, signs are cropping up that higher gas prices may be starting to chip away at consumers’ financial health. Analysts attributed a chunk of the unexpected $10 billion increase in consumer credit outstanding in June to the rising use of credit cards for purchases of gas and other staples.

Obviously credit unions are not the only institutions to feel the impact of higher gas prices; retailers and other financial services firms are affected as well. Yet credit unions may be best positioned to help their members develop sound coping strategies that preserve or even enhance their financial well-being in this challenging environment.

 

 

 

Aug. 14, 2006


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