Experian: Credit unions snag bigger share of car loan market

Credit unions held 22 percent of the auto finance market share during the first three months of 2022, Experian said, the industry's best first-quarter share in at least five years.

Demand for used vehicles and reduced automaker deal sweeteners helped credit unions capture a larger share, said Melinda Zabritski, Experian automotive financial services senior director.

"With low inventory and high consumer demand, we're not seeing nearly as many incentives on the market. This has resulted in an opportunity for credit unions to step in and gain market share, as they often offer the lowest interest rates," Zabritski said in a statement Thursday, June 2.

The 22 percent of the auto finance market controlled by credit unions during the first quarter represented a 3-percentage-point increase from a year earlier, according to Experian's data. In contrast, captive finance companies saw share fall to 25 percent in the first quarter — down 5 percentage points from a year earlier.

Automaker incentive spending fell to $1,640 during the first quarter, down $1,836 or 53 percent from a year earlier, according to Motor Intelligence data.

"Credit unions tend to focus on the used vehicle market and given the ongoing inventory shortages reducing availability of new vehicles and increasing demand for used, it makes sense to see this kind of increase in market share," Zabritski said.

Used vehicles were involved in 59 percent of all financing during the first quarter, up from 57 percent a year earlier, according to Experian. However, that's less than the 60 percent it reported in the first quarter of 2020 — a period largely prior to the COVID-19 pandemic's effects in the U.S.

Credit unions held 16 percent of the new-vehicle financing market during the first quarter, up 5 percentage points from a year earlier, and 26 percent of the used financing market, up 2 points from a year earlier.

The lenders were "definitely picking up share on the new loan side," Zabritski said.

Captive finance companies had a role in 50 percent of the new market, down 7 points, and 8 percent of the used market, down 1 point from a year earlier.

The Experian tallies include both direct and indirect auto financing. Zabritski said her company lacked a way to tease those individual segments out of the overall data.

"Anecdotally, though, I'm increasingly hearing from [bank and credit union] clients ... that there is a definite increased focus on direct lending," she said.

The credit union share during the first three months of 2022 was the segment's best showing in any quarter since the third quarter of 2018, which came in about a quarter of a percentage point higher.

Credit unions were particularly strong that year, to the point they almost reached a 30 percent share and nearly beat out banks as the No. 1 segment for used-vehicle financing, Zabritski said.

That time period also saw more customers with prime or better credit seeking used-vehicle financing — two aspects of the market upon which credit unions concentrate, Zabritski said.

"It was really just very good timing for what the credit union focus was," she said.

The Federal Reserve has begun to pursue a tighter monetary policy that eventually is expected to raise auto interest rates.

Zabritski said it's "very much a mix" when asked how the various lender segment shares would change as rates rise.

Credit unions tend to capture more business during rate increases.

"Usually in a rising rate environment, it's the credit unions [that] tend to pick up some of the most share," she said.

This trend applies to both new and used financing, she said. However, some banks offer such low rates right now that an increase probably wouldn't drive customers away.

In terms of captive finance share, automakers can throw out incentives if sales begin to dip because of rising rates, Zabritski said. However, it was unlikely rising rates would curtail sales given consumer demand and low inventory, she said.