By Ray Birch
ATLANTA—Credit unions and the captive financing companies were the “big winners” in auto lending market share gains in 2023, but if credit unions want a repeat performance in ’24, they will need to expand their lending base, says Equifax.
“If you compare 2023 to 2022, the real winners in terms of auto loan originations have been the captives and the credit unions,” said Lena Bourgeois, general manager, SVP, automotive and insurance, at Equifax. “I believe that has to do with their ability to offer a better deal structure—better interest rates, better programs for their for their members, better terms.”
She said Equifax is seeing some of the traditional big auto lenders—including Capital One, Truist, Bank of America, and Wells Fargo—pull back on their activity.
“And some of that some of that volume has really shifted to credit unions,” Bourgeois said. “Credit unions are in an excellent position to continue that trajectory into ’24.”
Where to Focus
But to do that, Bourgeois believes credit unions will need to focus more on alternative credit data to expand markets and not just cut off borrowers at a specific credit score.
“They need to look at other factors beyond just credit score,” she said, noting that lenders outside the cooperative space are relying more heavily on alternative data, such as utility bills, rent payments and other types of recurring payments.
Lena Bourgeois
As CUToday.info has reported, a number of fintechs have emerged seeking to carve out a niche in that space.
“There's just some great resources and data now a credit union can access to more accurately assess risk across the credit spectrum,” Bourgeois said, including Equifax, which has such an offering. “They have an opportunity now because they are benefiting from this current surge in borrower interest. Traditionally, they have not looked at other risk scores and they haven't felt the need to incorporate some alternative data to expand their ability to look at risk across the credit spectrum. But I think the timing is right.”
Timing is Right
And a major reason that timing is right is more new and used cars are expected to be on dealer lots, as lower interest rates will also bring more buyers to the market, according to Bourgeois.
“Inventory is going to improve and interest rates are going to stabilize, which means used car inventory and new car inventory is going to stabilize prices, which is all going to benefit the consumer,” Bourgeois explained. “I do think that we're still going to see some contraction…lenders are still being cautious, but cautiously optimistic, is the way that would put it.”
Leased Cars are Returned
A big reason used inventory will increase this year is the return of many leased vehicles. Bourgeois pointed out a large number of consumers extended their leases during the pandemic—due to rising costs and a limited number of new vehicles to choose as supply chain issues created clogs. Many of those cars will be coming back to the market this year.
“A lot of consumers have extended their leases to wait on the next model to come out. So, dealers have not been getting as many trade-ins,” Bourgeois said. “I think in 2024 the pre-certified used car inventory will go up. And that is really the segment that has suffered the most in ‘23.”
Downward Pressures
Bourgeois believes the return of all those used vehicles will begin to put downward pressure on new and used car prices, which have been inflated due to inventory shortages.
“I think we will see more reasonably priced cars, and I think that will lead to more consumers entering the car-buying market in 2024. That's going to help the industry quite a bit,” she said. “Also, I do think there is an expectation that interest rates will stabilize, and potentially even begin coming down.”
The Forecast
Bourgeois said forecasts call for 15.4 million new units this year, and about 16 million in 2024.
“The auto industry is highly cyclical. We've been here before, and we know what levers to pull and how to manage through some of the tough factors that we have been facing,” she said.
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