MAXX Coverage: An Update On What’s Happening (And Ahead) In Auto Lending

TACOMA, Wash.­–Credit unions here were given an overview on what’s happening in auto lending and what could be around the next bend in the road.

Marci Francisco, vice president with CU Direct, told the Northwest Credit Union Association MAXX Conference here there are trends taking place that will have “implications for all” when it comes to auto lending.

“Two to three years ago, the automotive experts thought this would be the year auto sales would plateau,” observed Francisco. “We have all been a bit surprised that that actually happened last year, and we’ve been in a bit of a decline. We expect softer sales, but by end of year we expect to be reasonably flat to 2017 numbers, around 17 million (new) vehicles sold.”

For 2019 and 2020 Francisco said CU Direct is projecting a mild slide in auto sales of between 1% and 2% to approximately 16.7 million new cars, with the used car market at a still strong 40 million vehicles sold.

“There is a lot of pressure on the new car side with a lot of vehicles coming off lease, meaning there being a lot of excess inventory,” she said. “We expect continued softness in 2020, and then maybe a little bit of a lift in 2021. But we are still at record levels of automobile sales, so there is a boatload of opportunity out there for credit unions.”

‘Connecting in a Smart Way’

Francisco said credit unions continue to build a strong marketshare in vehicle loans (the MAXX meeting was told one day earlier that in the Pacific Northwest credit unions are responsible for 55% of all auto loans), and that while other

lenders have been pulling back, CUs have been “connecting with members in a smart way.”

She added that leasing—around 30% of vehicles are leased—has been flattening and even shrinking as used cars come onto the market and offer a better value.

The average vehicle is now on the road for 12 years.

“Credit unions continue to finance the right kinds of vehicles in the prime and super-prime segments, “said Francisco.

Francisco said CU Direct data show approximately 40% of members still pay cash for vehicles, but for those who finance, the “average purchase price is brutal.”
The average used car is sold for $20,000, while new cars average $31,000 with an average payment on new cars of $525 a month, plus insurance.

Sixty-month loans, which were once considered long term, are shrinking as the average term on a CU Direct loan is between 73 and 84 months, according to Francisco. The average APR on new car financing is 5.76% for CUs using CU Direct; it’s 9.40% on used cars.
“We are keeping members in their cars longer, so that may affect the opportunity down the road,” she said. “What’s happening is we are in this affordability crunch that is expected to continue.”

The Road Ahead

Looking forward, Francisco said the research shows “25% of your members are shopping for cars and they probably aren’t telling you.”

The average person now spends 108 days shopping for a vehicle, but no longer because they want a new car but need a new car, according to Francisco.

“There is a shift in who’s buying the car and how they expect to be communicated with. You’re no longer competing against BofA or captive financing when it comes to the consumer; we’re competing against Apple and Amazon and Google, which have redefined the way people expect to be interacted with.”

Francisco said research shows that when it comes to online auto shopping, 86% is done on a desktop, 51% on smartphone, and 32% on tablet. Fourteen percent of members say they will never look at laptop and will engage only on a mobile device.

The majority of online auto shopping is done on third party sites such as AutoTrader or, Francisco said, followed by dealerships’ sites.

Francisco urged credit unions to recognize that the strongest driver of consumer satisfaction with the dealer is the borrower’s rating of relationship with lenders, meaning dealers will put great emphasis on whichever lender is underwriting its loans.

Market Disruption is Coming

“They say market disruption is coming, but I think it’s already here,” said Francisco. “It’s coming in a number of ways, in lending and in the choices we make on what we buy.”

The future of the auto industry and financing, she said, is in what’s known as A.C.E.S.: Autonomous Connected Electrical Shared. She noted that it’s all about “affordability,” with the average cost of mile of travel by taxi being $3.50; $2.86 for Uber (in San Francisco); 70 cents for personal cars, and 35 cents per mile for an autonomous taxi.

Francisco added a tipping point in the U.S. toward electric vehicles is expected by 2025; it’s 2030 for autonomous vehicles.

“It’s not about one auto loan, it’s not about today. It’s about the lifetime relationship with members,” said Francisco. “As a consumer, I expect you will know me and it will be a really personalized experience. If there is any kind of fragmentation, if marketing is disconnected from lending, if everyone isn’t tied into the one message they need to hear today, then sooner or later we’re going to have a hard time cutting through the noise.”

Posted in NWCUA in the News.