Navigating The Waves Of The Dynamic Auto Marketplace

Heritage Community Credit Union continues to lend amid declines in auto production and sales.


In today’s competitive marketplace, it’s imperative for credit unions to have a strong auto lending strategy.

Auto loans comprise the majority of the credit union loan portfolio and are second in portfolio share (34.9%) only to first mortgages (40.7%). In the second quarter of 2017, new and used auto loans increased 16.4% and 12.0% year-over-year, respectively, resulting in a total auto loan growth of 13.7% annually.

* Data for 5,757 credit unions reporting second quarter data.

However, on a macro level, the U.S. auto market has been battling headwinds. According to Automotive News, auto sales are expected to decline in July for the seventh straight month, and Edmonds is projecting a 6.2% year-over-year decline from July 2016.

As sustainability questions are raised about the broader auto market, credit unions continue to step up to fulfill the auto financing needs of their members.

One credit union that has posted notable growth in its auto portfolio is Heritage Community Credit Union ($201.8M, Rancho Cordova, CA). Since fourth quarter 2013, Heritage Community has posted double-digit auto loan growth on a consistent basis, including 38.4% annual growth rate in the second quarter of 2017. The credit union also has been steadily growing its wallet share within its member base — its auto loan penetration is 46.5 percentage points higher than its NCUA asset-based peer group.

In the first quarter of 2014, Heritage Community's concentration of auto loans exceed first mortgages — 38.2% versus 38.0% — for the first time since the third quarter of 2011. As of second quarter 2017, auto loans accounted for 56.5% of the credit union’s loan portfolio, up 6.5 percentage points year-over-year, whereas the first mortgage share of the portfolio declined 60 basis points to 26.3%.

*Data for Heritage Community Credit Union.

Across the industry, many credit unions are scaling back their indirect lending operations for a number of reasons, including concentration risk and profitability concerns as well as member engagement challenges. Year-over-year growth of indirect balances in the second quarter is projected to decelerate 1.6 percentage points from last quarter’s annual growth of 22.0%.

Although the national indirect portfolio continues to expand at a projected annual rate of 20.4%, credit unions like Heritage Community are putting an emphasis on direct lending as part of their overall auto lending strategy. In fact, in second quarter 2017, the credit union's direct loan balances increased 97.5% year-over-year and surpassed indirect balances.

*Data for Heritage Community Credit Union.

Despite decelerating growth for both financing types, indirect and direct balances across the credit union industry continue to expand. Indirect balances are projected to reach $182.5 billion in the second quarter of 2017, compared with direct balances of $139.2 billion.

Heritage Community is an example of a credit union navigating the waves of a dynamic auto marketplace by extending credit to members in need of a vehicle.

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  • I would have been much more inclined to read this article if the "how we are doing this..." was actually part of the discussion.
  • Thank you for being such a careful reader. We appreciate your taking the time to read our articles and for commenting. If we were to say the numbers demonstrated “that” Heritage Community was succeeding at auto lending in a tough environment, rather than “how,” it would have been more clear that this was an article about the data as culled and analyzed by one of our industry analysts. We also, of course, do articles that look explicitly into the “how,” providing best practices and lessons from experience that credit unions share with others on how they’ve accomplished what the numbers show. The wording here set the expectation for one type of article that instead was the other. We apologize for that confusion.
    Rebecca Wessler
  • The article is skimpy on details of the "how" they are growing. I could have gotten the same information in this article by looking at their call report. Having a headline of ..."demonstrates how..." and then not offering any details is poor.
  • Thank you for taking the time to comment. You make two points here. The first is about the article not demonstrating how the credit union has been growing, as the headlines advertise it will. Perhaps we could have been more clear if we had said it was demonstrating “that” you can succeed in this competitive environment, rather than “how.” The second, that you could have gotten this same information from its call report, is another interesting observation. We work hard to distill information from call reports and enhance that with context and actionable insight, whether the topic is a single credit union, a single lending product, or trends across the entire industry. We have some articles that are data-driven, such as this piece by one of our analysts who specialize in spotting outstanding performance and highlighting that with the numbers. Other articles are best-practice pieces, case studies that focus on exactly how an institution has accomplished that success. By taking the time to offer your comments, you’re telling us that you were expecting one type of article, based on the headlines, and got another. We apologize for that, and thank you for being such a careful reader!
    Rebecca Wessler