SAFE Federal Credit Union, a $1 billion institution based in Sumter, S.C., set new records during its spring auto loan promotional campaign – attracting not only new loans but new members, as well.
That success is part and parcel with what's happening at credit unions across the country.
More than 3,100 people took advantage of the offering, about two-thirds of whom weren’t already members of the CU and joined SAFE as part of the program. The CU made about $79.4 million in loans – 13 percent higher than the $70 million a similar promotion brought in last year.
The latest loan total far exceeded SAFE’s target of $51 million. Interestingly, as Ronnie Warner, vice president of lending for SAFE explained, the credit union had actually set more modest goals for this latest campaign because of worries that following the successful 2016 promotion, the CU might have “saturated” the local auto loan market. “We may have lowered our projections a bit, but we were incredibly pleased and surprised at the results,” he stated.
Called “Driving You Forward,” the ten-week campaign was boosted by heavy advertisements on television, with an emphasis on loan pre-approvals.
SAFE FCU offered rates as low 2.24 percent, for up to 60 months, well below the average 2.99 percent rate the credit union usually charges for auto loans.
Warner noted SAFE FCU has run similar auto loan promotions in the spring and autumn for the past 20 years – and will continue to do so for the foreseeable future.
Rates charged on auto loans depend, of course, on the borrowers’ credit scores and age of collateral, Warner explained, with the highest rate at about 18 percent. However, he estimated that 80 to 90 percent of borrowers were levied rates in the 2 to 3 percent range.
Regarding the success of the latest promotion, Warner believes a number of factors came into play -- including an improving local economy and a more aggressive push by the credit union’s marketing department to publicize the program’s benefits.
Moreover, automobiles are crucial in South Carolina, a state with no real public mass transit system – hence, a built-in demand for vehicles.
Of the $79 million in loans, $50 million came via indirect lending – a channel that Warner said has become more dominant for SAFE in the past few years
“SAFE has 19 branches, but having a relationship with five dozen auto dealerships across the state gives us more access points for customers and borrowers,” he said. “We view these dealerships as an ‘extension’ of SAFE FCU. We have better interaction with these dealers and they serve as a kind of ‘cheerleader’ for the credit union.”
The success of SAFE’s promotion dovetails with what’s going on nationally. According to data from Callahan & Associates, auto loan volumes at credit unions have been rising steadily for the past five years. At the end of the first quarter of 2017, auto loan balances at credit unions totaled about $310.1 billion, almost double the $168 billion figure from spring 2012. Indirect auto loans have increased at an even faster rate – from $72.1 billion of the total in March 2012, to $173.8 billion in March 2017.
Sam Taft, senior director of industry analysis at Callahan, said auto lending continues to be a “reliable bright spot” in the credit union loan portfolio.
“Despite broader downward pressure seen at a macro level (declining sales and production), credit unions are seeing sustained demand for vehicle loans across the country,” he said.
Using preliminary results from the second quarter of 2017, Taft indicated the total auto loan portfolio for the credit union industry is projected to increase by nearly 13.7 percent year-over-year to just over $320 billion, down slightly from the annual rate seen in March 2017 (13.8 percent). But this would also mark the sixteenth consecutive quarter of annual double-digit portfolio growth.
Paige Corcoran, senior vice president of lending at Pelican State Credit Union of Baton Rouge, La., noted that the $311 million CU’s auto loan portfolio has witnessed a 14.6 percent increase with year-to-date balances of $24.1 million as of July 2016 versus $27.7 million as of July 2017. She further said that 31 percent of their total loan portfolio is made up of auto loans -- 27 percent for used autos, and 4 percent for new autos.
John Holt, president of Nutmeg State Financial Credit Union, a $426 million institution based in Rocky Hill, Conn., attributed the increase partly to big banks stepping away from auto loans to focus on more profitable real estate and commercial loans. But the bigger factor, he suggested, is that credit unions are working hard to speed up turnaround times.
”At Nutmeg, we usually respond to the borrower within less than 24 hours, sometimes as quickly as 10 minutes,” he told Credit Union Journal.
But credit unions are going to have to keep working on that, said Tony Boutelle, president and CEO for Ontario, Calif.-based CU Direct, owners of the country’s largest credit union auto lending network (with its credit union partners just having surpassed Capital One bank in terms of volume to become the nation’s top lender). This is especially important when trying to attract millennials, he said. “We’ve worked closely with our credit union partners for a long time, determining what their needs are, especially from a technology standpoint, and creating efficiencies that help them grow loan market share,” Boutelle added.
The 1,100 credit unions in CU Direct's CUDL auto lending network originated almost 568,000 auto loans through June 2017, an 18.2 percent jump from the prior year. “Credit unions as a whole are approaching 30 percent share in balances and 26 percent share in transactions, and have experienced a 4 percent market share increase over the last two years. Some of that came from banks, which have lost 5 percent share over the same period,” Boutelle adds.
Indirect lending continues to be a driving force behind CUs’ success with auto loans, but Nutmeg’s Holt offered a somewhat mixed-bag perspective on that.
“We have seen a huge increase in indirect loans at Nutmeg,” Holt said, but then went on to say that his credit union is actually pulling back from this segment. “Indirect loans can be somewhat riskier and can often incur higher loan losses. The loan process starts at the dealer, not the credit union, thus, in some cases, the relationship and the knowledge of that borrower is limited and oftentimes creditworthiness might not always be of the highest quality. So you have to be careful with your underwriting standards.”
Not surprisingly, credit unions tend to focus on high-quality borrowers, CU Direct said, with a majority of lending activity in prime. In keeping with that, delinquencies remain lower at CUs relative to other financial institutions.
Looking at the future, Holt noted, as the auto industry itself changes – i.e., the rise of ride-sharing services like Uber and the emergence of electric vehicles, etc. – credit unions must prepare for such developments in their own loan portfolios.
And what about the health of the economy?
Interestingly, Corcoran of Pelican State offered that the state of the overall economy doesn’t always directly correlate to the state of its credit union’s business. “Several other factors come into play -- such as the type of market you’re located in and the main industries in your state,” she said. “The majority of Pelican’s new members and loans come from referrals from friends or family members we have helped in the past, and we expect this to continue in the future.”