TransUnion’s data shows credit union auto loan origination volume grew at a rate more than double the pace of the entire industry. Findings from a survey of 90 credit union executives TransUnion released this week also highlighted these institutions’ appetite for auto paper certainly isn’t waning; it's perhaps even becoming greater.
TransUnion’s survey revealed that auto loans rank at the top of the list for credit union executives in terms of loan growth, focus and opportunity during the next 12 months. Auto loans were ranked No. 1 by 48 percent of credit union executives and in the top 3 (of 12 credit categories) by 81 percent of respondents.
“Auto loans have proven to be one of the key growth opportunities for credit union executives in the past and should continue to do so in the future,” said Nidhi Verma, director of research and consulting in TransUnion’s financial services business unit.
“Auto loans are especially appealing because of the high demand for both new and used vehicles, as well as continued low delinquency rates,” Verma continued.
When Verma compared the survey results with the origination data TransUnion has available, she told SubPrime Auto Finance News that “clearly the messages are pretty tied together.”
From the first quarter of last year to the first quarter of this year, TransUnion reported a 7.4-percent increase in new auto loans issued by credit unions, while the rest of the industry saw a 2.1-percent increase in the same timeframe.
Verma also pointed out that subprime constituted 12.5 percent of all new loan originations in Q1 2015 for credit unions. This was similar to the 13.1 percent subprime share of originations in Q1 2014.
“There’s been a lot of conversation in the industry about subprime originations,” said Verma, who made a presentation in Las Vegas this week during a seminar TransUnion hosted for the credit union industry.
“Credit unions continue to be relatively conservative compared to the rest of the industry with approximately half the size of the subprime auto lending market,” she continued.
“Credit union delinquency rates are half the rate of the rest of the industry, which is a reflection of how credit unions manage risk distribution in this market,” Verman went on to say. “That’s one of the core differences that’s helping their delinquency rates.”
TransUnion also found that the duration of vehicle installment contracts credit unions are booking is lengthening.
In Q1 2010, 32 percent of credit union auto loans were originated with duration of more than 60 months. By Q1 2015, that percentage had risen to 47 percent.
TransUnion noted approximately 39 percent of survey respondents said that more than half of their auto loan originations are 60 months or greater in length.
“These data points clearly show that greater loan lengths are one of the drivers of growth in the auto market,” Verma said.
“In the current low interest rate environment, longer loan durations allow consumers to buy new or used cars with lower monthly payments that fit within their budget,” she went on to say. “The increase in loan durations shows lenders are meeting those consumer needs.”
After sharing the data and survey results, Verma explained that credit union executives should be in a better place to make decisions.
“If I’m a credit union and I’m developing a strategy for my auto business, you’re forming your strategy at one point in the year so you know where the capital investment is going on for the next 12 months,” Verma said. “We like to tie our survey and data into that strategic investment philosophy.”
Editor’s note: Watch for a future report in SubPrime News Update where CU Direct executive vice president Jerry Neemann offers his assessment of how credit unions and dealerships are working together more than ever to improve sales and originations.