After making a name for itself in indirect auto lending and then moving a few years ago into loans for medical procedures and devices, CU Direct is set to expand again next year, launching a mortgage product and home equity product for credit unions.
That’s not to say, however, that the company is moving away from auto lending. Far from it, in fact.
Speaking during the credit union service organization’s recent annual conference near Dallas, President and CEO Tony Boutelle noted that the company’s auto lending is up 20 percent already this year, having grown by 17 percent last year, collectively making CUDL credit unions the largest auto lender in the nation.
“We were not even being in the top 10 10 years ago,” he told the crowd. “Congratulations to all of our CUDL credit unions. The bigger our network gets, the more opportunities we have. The network now is 1,117 credit unions and 14,500 dealers. When you control delivery channels you control pricing. Once credit unions are on the platform they have lower costs and can offer a better member experience.”
The company’s lending vision is a “show me that you know me” approach, he said.
“As members go from one product to another at your credit union, we make sure they don’t have to start all over with an application. We keep all of their documents in the member portal,” he explained, adding. “Looking ahead, we will be using autonomous loan processing by artificial intelligence to sort, identify and verify loan documents. With this, we hope to improve 25 percent to 50 percent of the costs on indirect loans.”
The future is A.C.E.S.
Boutelle reminded the audience Bill Gates once famously said people overestimate what will happen in the next two or three years, but underestimate what will happen in the next 10 years. “I think that is what is happening in auto lending,” he assessed.
The future of automobiles is A.C.E.S. – which Boutelle said is an acronym for Autonomous, Connected, Electric, Shared. Every car manufacturer in the world wants to be an early mover in this brave new automotive world, as evidenced by the fact research and development spending is up across the board. For example, Volkswagen is going to invest $84 million in electric vehicles over the next several years, while abandoning diesel.
Boutelle pointed to three big factors that will shape the next two decades of the auto industry: the shared economy, electric vehicles and autonomous vehicles. He said both Uber and Lyft have a long-term plan to replace their current drivers with autonomous vehicles. There are five levels of evolution to autonomous vehicles, and the U.S. currently is transitioning from level two to level three.
“Level four cars are close. This will mean self-driving systems but still a steering wheel and a brake for driver input,” he explained.
There have been several accidents involving autonomous vehicles, which Boutelle said is part of the learning process. To take the next steps, roads will require fresh lane markings readable by vehicles, and the Internet will need to be everywhere.
There is money pouring into the autonomous vehicle space from many directions, Boutelle noted. Alphabet, the parent company of Google, owns Waymo, which has 600 autonomous minivans operating in Phoenix. Waymo has thousands more vehicles on order and is “aggressively” planning a rideshare program, he said. Apple was testing 55 autonomous cars on public roads in May, up from 45 in March and 27 in January. General Motors has 104 Cruise vehicles operating, and the CEO of GM is “all in” on autonomous vehicles. In 2019, Volvo will do away with combustion engines and will put out only electric or hybrid models.
The pace of battery cost-reduction is “critical” to consumer adoption of electric vehicles, Boutelle continued. Perhaps the second biggest factor is accessing energy. Today there are 17,749 locations to charge a car, and the most take 4 hours to fully recharge. The range of many electric vehicles today is less than 120 miles.
“As electric cars become more commonplace, it will impact service at dealerships,” he said. “Vehicle life will be going up, and maintenance costs per mile will be going down.”
Ride share and even car sharing are increasingly popular. Boutelle noted Uber has partnered with a company called Getaround to allow people to rent a car for the short term – an Air BnB for cars, in effect. Turo is a similar service. Other services have managed fleets, including Zipcar and Car2go.
In yet another development for CUs to keep an eye on, Boutelle said some companies, including Volvo, Cadillac and Porsche, are offering subscription and usage options, which go for a lower monthly payment than a purchase. These agreements are similar to a lease in that there are fees to stop and start, but consumers can stop at any time.
For obvious reasons, all of these developments will have huge impacts on credit union auto lending. Boutelle said CUs need to be aware and start thinking about how financing might work.
“There are 250 million cars on the road today and manufacturers are adding 8 million to 10 million each year, and most of those will need loans,” he said. “We think people will continue to own cars and finance cars, but we expect there will be fewer cars per household. Keep doing what you are doing with auto financing, and keep building relationships with dealers. Be aware of pay-as-you-go financing. The CU Direct Innovation Lab is researching multi-owner contracts and autonomous vehicle fleet loans. It is a few years out, but important to keep an eye on.”
In an interview with Credit Union Journal, Boutelle said it is important for credit unions to keep an eye on the future, but keep a business-as-usual approach to auto lending for now.
“One in four auto loans today go to credit unions, which is great, but know that in 10 years to 15 years things could change, so do your research,” he advised. “There is a lot of time to determine what will really be impacted. Will the subscription model take away from ownership? Or from leasing? Will it catch on? It probably will be at least 10 years before credit unions have to do something different.”
The big takeaway is not if major change might happen to the auto industry, it is how long it will take to happen, Boutelle said.
“The auto companies are investing billions of dollars, so change is coming,” he said. “There still will be ownership in some form, but there might be families who go with one car rather than two or three. The subscription and autonomous parts are the biggest question marks.
More coverage from the 2018 CU Direct DRIVE conference can be found here:
More warnings for credit unions about potential recession
Why credit union auto lenders need to be wary of longer terms
Credit union loan participation marketplace in the works