U.S. credit unions continue soliciting their own memberships in an effort to grow auto loans, and they seem to be finding traction.
Auto lending penetration, defined as the number of vehicle loans as a percentage of total members, stood at 16.0% for the credit union industry at the end of the first quarter of 2013. That number grew to 20.6% at the end of the first quarter of 2018.

One credit union making strides in selling existing members on auto loans is Erie FCU. The Erie, Pa.-based institution had $95.7 million in auto loans outstanding at the end of the first quarter of 2018. Its auto penetration was 15.7%, up from 11.4% in the year-ago quarter.
While auto lending is down slightly overall in Erie FCU's market area, the credit union continues to outperform due to efforts such as revisiting auto loans that were approved by Erie but not funded, Chief Marketing Officer Tom Brennan said. In an interview, Brennan said the credit union has made an effort to find these members and offer them a promotional deal — normally a discount on their rate and/or cash back after a year plus 60 days with no payment.

But when credit unions are forced to look outside for new auto borrowers, competition in the form of indirect auto lending is often looming. A handful of credit union CEOs attending the Pennsylvania Credit Union Association's annual convention earlier this month mentioned indirect lending playing an increasingly large role for credit unions that lend in the auto space.
Pittsburgh-based Omega Federal Credit Union does no indirect lending, so it must capture auto loans internally whenever it can, said Troy Garvin, president and CEO.
"That has been a primary focus for Omega for the last few years because the dealer is so good at the point of sale that it is hard to get the original loan without doing indirect lending," Garvin said. Omega had $11.2 million in auto loans outstanding at the end of the first quarter of 2018, and its auto penetration rose to 6.2%, up slightly from 5.9% in the year-ago quarter.
Auto lending in general is "soft" in part because the manufacturers have done a "brilliant" job of marketing offers such as 0% financing, according to Garvin. He said vehicles today are more of an impulse purchase — especially with younger buyers — and so indirect lending is more important than ever. "If they can get the right deal and the right payment at that time, they want to close it and walk out the door," he said.
So credit unions that are not available at the point of sale are often left out in the cold. Omega has considered entering the indirect market, but a cost/benefit analysis done while interest rates were low showed that it did not make sense. "There just wasn't enough margin there to make it worthwhile," Garvin said.
But with rates now rising, Omega will likely take another look. To make it work, the credit union would have to be able to convert 20% or 30% of those indirect customers into full-service members, but it currently does not have support staff in place to do that, Garvin said.
Erie FCU's Brennan said that with ever-increasing pressures from nontraditional lenders and out-of-market paper buyers, it is critical that the credit union work with dealers who will not redirect members referred to them by Erie. To accomplish that, Erie FCU added to its staff and realigned some duties throughout the department.
At the same time, the company is using pre-screening tools to focus its marketing outreach on those who are most likely to respond to offers, Brennan said.

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