By Ray Birch
IRVINE, Calif.—Credit union lenders are optimistic about the growth for indirect auto lending in 2022 and are finding ways to stay close to dealers as they navigate through the pandemic. However, there are some concerns being voiced, especially over the length of loan terms and loan-to-value ratios.
Those insights and others were expressed by two credit unions whose indirect programs have been strong during the health crisis in comments shared during a recent Origence webinar on indirect lending.
During the webinar, titled “Implementing a Successful Indirect Lending Program,” Origence outlined the state of auto lending among credit unions in the CU Direct Lending (CUDL) auto lending network this year, with CUDL CUs funding 1.6 million loans through the network, generating $42.6 billion in credit union auto loans, an increase of 14.3% YoY through the third quarter of 2021, according to the company.
Applications also rose in the third quarter, as 5.8 million loan applications were submitted through the CUDL system, an increase of 4.6% YoY, Origence added, noting credit unions using its solutions have increased auto loans 100.8% since 2013.
CU Direct credit unions as a group are the second-largest auto lender in the nation in terms of the number of auto loan made this year, behind Capital One Auto Finance.
What’s Working
What has been working for $1.4-billion Honor Credit Union, Berrien Springs, Mich., and $3.3-billion Knoxville TVA Employees CU, Knoxville, Tenn., are consistent loan decisions, fast funding, being flexible with pricing on loans and staying close with dealers during the health crisis, the CUs stated during the webinar.
“We have been making sure our loan decisions have been consistent, and that comes from the experience of your loan officers, which also helps with fast funding,” said Lisa McDaniel, AVP of indirect lending at Knoxville TVA Employees CU. “Consistency and fast funding is what dealers want.”
At Honor Credit Union, it has been a doing much the same, said Tami Rachels, indirect lending sales manager.
“We do a great deal of same-day funding and instant approvals, as well,” said Rachels. “That is huge for maintaining strong dealer relationships.”
At Knoxville TVA Employees FCU, one full-time dealer rep is on the road six days a week, and a part-time dealer rep gets out of the office two days a week to talk face-to-face with dealers.
“Our buyers then try to go out and make cold calls once a month, which has been a little harder with the pandemic,” said McDaniel. “But we get out and work the relationship, and I even get out at times. We like to put a face with a name and that has worked for us.”
Honor CU has one dealer rep to cover Southwest Michigan as well as another rep that covers other areas of the state.
“We also have funders and underwriters trying to build relationships in their calls, keeping close communication through video chat, as well,” Rachels said. “Video chat has worked well during the pandemic.”
With the auto market being somewhat unsettled today, Rachels said her dealers appreciate even closer communication from their lending partners.
“They like to know that we are listening to them,” Rachels said.
Fast Payoffs?
During the webinar, one attendee posed a question about auto loan balances paying off faster than the credit unions can make new loans. As CUToday.info reported, in its latest Trends Report CUNA Mutual forecast credit union new-auto loan balances should continue to fall as loan repayments exceed originations for the next nine months.
But both Rachels and McDaniel responded by saying that isn’t something they have seen happening at their shops.
“There is no reason to expect we won’t see auto lending grow if dealers can get the inventory, because the consumer demand is there,” said Rachels.
Demand for Longer Terms
One area in which there has been greater demand is longer loan terms, which is leading to more loan-to-value exceptions, one CU stated. It’s not alone.
“We've noticed a growing request for longer terms. That makes me pretty nervous and definitely it’s a market change,” said Rachels, who added Honor CU is lending out to 96 months now.
“We are staying at 84 months for the time being,” added McDaniel. “We do have some local lenders that are going out to 96 months and testing the waters, but we are just not comfortable with that now.”
Instead, the strategy at Knoxville TVA now is to make adjustments for loan-to-value exceptions. As CUToday.info and other media have widely reported, new car prices are rising while values on used vehicles have hit the accelerator especially hard as the inventory shortage drags on–often over-inflating the value of used vehicles. Values are expected to markedly drop once the supply chain for new cars is functioning again.
A Stronger 2022
McDaniel added that Knoxville TVA has also moved to place greater focus on the entire member relationship, including their history with the credit union, rather than just focusing on the value of the collateral.
McDaniel and Rachels both stated their credit unions are projecting indirect lending volume will be stronger in 2022, and webinar attendees agreed in a spot poll—64% of the audience said they expect to see an increase in indirect next year, 32% said it will stay the same and 5% predict a decrease.