Credit unions on CU Direct’s auto lending network as a group were the second-largest auto financing source in 2016, CU Direct said last week. Wells Fargo Dealer Services was the only lender that beat CU Direct by number of auto loan originations.
Ally Financial, the 2015 leader, ranked No. 3 in 2016.
Together, the more than 1,000 credit unions using CU Direct’s CUDL lending platform were the third-largest financing source in the U.S. in 2015 and 2014. CU Direct’s CUDL platform connects credit unions to more than 13,000 dealerships nationwide.
Credit unions in the U.S. continued to hold about a quarter of the auto finance market in 2016. In the new-vehicle finance market, credit unions have the third-highest share at 18 percent, but in the used-vehicle market, they have the second-highest share at 27 percent. Banks have the highest used share at 38 percent, according to AutoCount data.
Credit unions typically struggle to be competitive on new vehicles because most don’t floorplan, and none function as an automaker’s finance company, Michael Cochrum, vice president of analytics and advisory services at CU Direct, told Automotive News. About three quarters of credit unions’ loans are for used vehicles.
“There are certain loans that captives are going to buy. All the rest of that business is going to go to a bank or a credit union,” Cochrum said.
Between the two, though, credit unions are significantly lower priced than banks, offering rates beneath banks’ at every credit-tier level, he added. In the 300-599 credit-score range, he said, credit unions have lower average rates than banks and captives both.
Oftentimes credit unions’ first strategy is to offer the lowest rate, Cochrum said. “That’s been detrimental because some are having a hard time squeezing profitability from low-credit borrowers,” he said.
As the rate of sales growth slows, lenders are competing for market share, he added.
Instead of lowering rates, Cochrum suggests, credit unions should focus on providing “a preferred, good relationship with members” by engaging them earlier in the shopping process. Credit unions can use internal data to predict when customers are most likely to buy a vehicle.
“Put a little bit more energy in the process and capture customer sentiment before [customers] get to making the decision,” he said.
Doing so, Cochrum said, will instill the credit unions’ brand in the customers’ mind and allow them to go into the dealership preapproved for a streamlined transaction.