How credit unions, as a group, will become the largest auto lender

Credit unions as a group, largely working through Credit Union Direct’s CUDL platform, are poised to become the largest single lender to auto buyers -- eventually. Here’s how.

First, a disclaimer. I moderated a panel of dealers at a conference in May sponsored by Credit Union Direct. Hearing four dealer panelists and a roomful of credit union representatives talking, sometimes bluntly, about what each side needs to do to work better together left me thinking that those two groups have a lot of common interests.

So maybe I’ve been brainwashed. But the data are compelling.

Among lenders making retail auto loans (that is, excluding leases), credit unions using CUDL ranked No. 3 in originations in 2014, a sharp jump from No. 6 in 2013, Experian’s data show. Last year, Wells Fargo was No. 1 and Ally No. 2.

Not in 2015

At the conference, Credit Union Direct CEO Tony Boutelle exhorted the attendees: “Who wants to get to first place this year?”

This year? I don’t think so.

New-vehicle sales growth has slowed to single digits (4.5 percent through May this year). Jonathan Banks, senior director of vehicle analysis and analytics at NADA Used Car Guide, worries that automakers won’t be content with those modest gains and will hike their incentives. That will hurt used-vehicle prices, with a number of undesirable side effects. I predict it also will channel more lending to captives.

Speaking at the conference, Banks outlined the implications of what he first called his higher-incentives “pessimistic” forecast for 2015, and then added, “I wouldn’t even call it ‘pessimistic.’ I’d call it my ‘probably gonna happen’ forecast.”

Slicing the pie

At some point, this cyclical industry will turn down again. When sales fall, captives will scale back. One or more banks will pull back from auto lending, as we’ve seen in other downturns. That will be credit unions’ opening.

In other words, the total pie will be smaller, but more of it will be up for grabs. And credit unions will be positioned to increase their slice.

For starters, they are unlikely to be badly burned by an economic downturn. Melinda Zabritski, senior director at Experian Automotive, told conference participants that while data show credit unions have added more nonprime loans to their portfolios, “you’re not doing a lot in deep subprime.”

In credit unions’ favor, even in a downturn, they will remain, along with dealerships, locally based and highly embedded in their communities. A national bank can decide to totally halt auto lending in three states. That’s not how local credit unions work.

CUDL’s role

They’re also supported by CUDL. Its lending platform allows 11,404 dealers, representing 61 percent of U.S. franchised dealers, to connect to 1,074 credit unions, with 40.1 million members.

If you don’t know CUDL, the easiest explanation is that it’s like Dealertrack for credit unions, transmitting deal details between dealership and lender.

Credit Union Direct personnel don’t always like the Dealertrack comparison. They think it understates some of the other benefits the company offers both credit unions and dealers, including a car-shopping platform that directs credit union members to CUDL-linked dealers.

But the comparison captures the core value of CUDL: By creating a common lending process, CUDL enables a dealership “to work with a number of smaller [financial] institutions,” i.e., credit unions, as easily as it works with a large one such as a Wells Fargo or an Ally, said Jerry Neemann, Credit Union Direct’s executive vice president of automotive solutions.

“Can we be No. 1? Yeah,” Neemann told me. Credit unions have “money to lend,” he said. “As long as they do, they’ll continue to grow.”

You can reach James B. Treece at jtreece@autonews.com

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